CHAPTER 5

BUSINESS AND FUNCTIONAL

LEVEL STRATEGIES
PRESENTED BY GROUP 4
 5.1 The Strategic Business Unit

As expounded in the preceding chapter, the business

operation may involve a single business unit in which
case it has its own charter and corporate or
organizational structure. However, as a part of a
business family or conglomerate so to speak, such
organization is treated as a small or strategic
business unit (SBU) and sometimes treated as a
department or unit of a mother business organization
for purposes of corporate planning or doing corporate
strategy. Williamson, Jenkins, et al. (2004) defined
strategic business unit (SBU) as a unit that produces
products or services for which there is identifiable
group of customers.
 5.1 The Strategic Business Unit

The units can be also defined geographically (e.g.,

Asian division, European division) or according to the
nature of their operations (e.g., manufacturing group,
marketing group, etc.). The mother unit or the
corporate center normally allows the divisions or units
to operate with varying degrees of operational and
strategic autonomy within an overall centrally
controlled framework usually guided by its corporate
strategy.
5.2 Understanding Strategy and the Business
Organization
A business organization of whatever kind (i.e.,
corporation, partnership, or sole proprietorship) is
legally considered a person that can sue and be sued.
As such, the business has to observe the norms and
standards as needed or as it sees fit - and for certain
strategic reason. In considering any of the strategic
options the business may have to take, the business
organization has to live with the requirements of laws
and the various forces as well as interest groups
around it as shown in Figure 23. The groups identified
in Figure 23 are macro or external in context whereas
the micro or internal in context are shown in Figure 24
5.2 Understanding Strategy and the Business
Organization
The various groups shown in Figure 23 may have a
common desire in the end but the fundamental
interests and concerns these groups pose upon the
business organization vary and oftentimes conflicting.
The stockholders or owners of the business are
principally concerned with profits while the concern of
employees/union is basically salaries/wages which the
management and stockholders may want to suppress.
In fact, there is always a conflict with the top
management and the lower level employees/rank and
file especially so if the employees are unionized. Of
course, there are direct and indirect competitors that
the business organization has to fight for in marketing
war and be competitive all the time.
5.2 Understanding Strategy and the Business
Organization
There are a variety of stakeholder groups who are not
prospective customers but exert a lot of pressure
upon the firm along religious, cultural and other
tradition that may have some bearing with the
products or services and one that the business has to
live with. There are local and international standards
that have to be observed along with other
global/regional socioeconomic and political pressure
that in the short-and long-term can affect the
business. On top of these various factors are other
unseen hands and factors that research efforts have
to address all in the name of making the business
competitive amidst macro and micro elements
surrounding the business.
5.2 Understanding Strategy and the Business
Organization
The industry or sector where the company belongs is
very specific considerations that has to be addressed
as shown in Figure 24 as postulated by Williamson
and Jenkins (2004). To be able to compete within the
industry it belongs taking into account the
various competitive forces as discussed in the
previous chapters particularly those aspects relating
to Porter's business competition model, it is a must
for management as well as employees behind the firm
to understand the components of its business
environment as presented by Williamson, Jenkins, et
al. (2004) as shown in Figure 24.
FIGURE 23
FIGURE 24
Vital to strategizing at the level of small business unit
or functional level is the fact that within the
organization itself, it has to deal with a number of
factors and variables. For one, it has to really know its
resources as well as capabilities and whether such
aspects are transformed into competencies resulting
to a competitive product or service. It has to know by
heart the market and the environment it is serving.
The business organization needs to be thoroughly and
expertly familiar with its processes to be able to know
and develop strategies leading to producing quality
products at competitive prices. The organization
needs to have structure in size not-so-small that it has
difficulty doing its business or not-so-huge to make it
manageable and overhead burden at tolerable limits.
 It needs to fully know its customers' needs and wants
as well as level of affordability to be able to develop
and market a product or service within its reach. It
has to live with the required synergy and fit with the
other business units it works with and with market
and society in general. The organization has to
continuously monitor its performance at various levels
all the way to the individual worker to ensure that
each of the employee has a role to play in achieving
strategic pursuits and the end goal of achieving the
vision and mission.
 5.3 Business Level Strategy

Once a corporate strategy has been decided upon and

laid down or once a single business has been
established as a start up company, it must accept the
idea of business competition within the industry or
sector it has set foot. Necessarily, the business
organization must exert an effort to know the major
players of the industry and decide how to compete in
the sector it operates. In fact, a better way to accept
and prepare for this challenge is to undertake a
comprehensive research and business planning prior
to operationalization of the business to be able to
face the competition at day one of the business
operation.
 5.3 Business Level Strategy

The firm musthow to keep it in a sustainable manner.

This scenario gives reason to develop a business level
strategy further translating it all the way to the
functional or operating unit strategies. Unlike a
corporate level strategy which looks at developing a
broader strategy to provide a common agenda for a
number of individuals or independent business
organizations belonging to the group or the
conglomerate, the business level strategy is more
focused and meant for the single business concern or
a small business unit forming part of the family of
business concerns.
 5.3 Business Level Strategy
The business level strategy serves as a guide of a
single business firm itself as it wades to the
competitive world of business. It combines the
strategies used by the various functional units of the
business organization to make itself competitive in
the industry it belongs.
Business level strategy is the operational plan of
action of a single and independent business that uses
the company's resources and competencies to gain a
competitive advantage over its rivals in the market or
industry. It essentially refers to the strategy of a
single business concern setting direction as to what
and how the organization will conduct its business.
 5.3 Business Level Strategy
While the corporate strategy orchestrates how the other
members of the business group would conduct their
business, business level strategy orchestrates the various
functional units (e. g., marketing, production,
administration, finance, and the like) to make itself
competitive and profitable on-going concern. The
business level strategy occurs at the business unit
emphasizing the improvement of the competitive position
of the firm's products or services in the specific industry
or market segment served by the business unit.
Compared to corporate level strategy which is broader in
context on account of a number of business organizations
to work on, business level strategy is relatively much
simpler and less complicated as it takes into account its
own business vis-a-vis its external environment in
 5.3 Business Level Strategy

Unlike corporate level strategies which synchronize

various business units comprising of individual or
chartered organizations, business level strategy seeks to
synchronize various functional units and their respective
functional strategies into a consistent and well
coordinated efforts to achieve the vision of the business
organization. Stahl and Grigsby 1992) simply
differentiated corporate and business-level strategy by
way of stating that the corporate strategy concerns with
the question as to what business or business areas do we
want to be in. Business-level strategy on the other hand
concerns with the question of how should the company
compete in the chosen business.
 5.4 Hierarchy of Strategies

Strategies may come in at least three levels as shown in

Figure
25. The diagram shown in Figure 25 defines the order of
hierarchy and coverage of the three levels of strategies.
The diagram also defines the context, limits and
boundaries of corporate, business and functional level
strategies: from a broader perspective in the form of
corporate strategy further transformed into business
level strategy at the single or strategic business units
then further translated into functional strategy and
further on to more specific details articulated in the
operating level strategy to much smaller operating unit
as may be necessary.
 5.4 Hierarchy of Strategies

The transformation of corporate level strategy into a

business level strategy and down to a functional and
operating unit strategy takes the form of a pyramidal
diagram as shown in Figure 26. As implied in the diagram
shown in Figure 26, it is clear that in a corporate setting,
business level strategy and its supporting functional and
operating strategies has to be coherent or consistent
when viewed either upward or downward to ensure
achievement of corporate vision.
FIGURE 25
FIGURE 26
 5.5 Considerations in Business Level Strategy

Given the notion that business level strategy deals with

how a particular independent business organization or
strategic business unit does its business to make it
competitive and profitable over the long-term, certain
considerations have to be considered as shown in Figure
27. As shown in Figure 27, doing a business level strategy
is premised on a planned and proactive mode to
outcompete the company's rivals or other players in the
industry.
FIGURE 27
 In developing a business level strategy and in order to
stay competitive or outdo the firm's competitors,
substantial efforts should be made to develop strategies
taking note of the following areas of concern:

a) specific responses to changing conditions;

b) scope of geographic coverage of the business strategy;
c) explore collaborative alliance or partnerships as
necessary;
d) the financial strategy to support the overall business
strategy;
e) the specific functional strategies to be undertaken;
f) concern for research and development strategy; and
g) conscious efforts to build competitive advantage.
 5.6 Risks of Single Business Concerns

The idea of growing and expanding is a natural direction

for a single business to take if only to avoid business
closure when the company becomes less or uncompetitive
or for whatever reasons.
 On the other hand, not expanding amidst growth and
success is by itself an option or a strategy but it comes
with risks. Being an independent and a solo or single
business concern means accepting some risks as follows:
a) Putting all the "eggs" in one industry basket - It
theorizes that a single business incurring losses in its
operations could mean going out of the business with
nothing to fall back on.
b) Missing profitable business opportunities on account of
lack of resources and skills to do so.
c) Unforeseen changes can undermine a single business
firm's prospects - A sudden change in market conditions
makes it difficult to adjust or may be too late to do so.
d) Changing customer needs - As customers' needs vary,
there is a limited leverage or option to take to meet
varying customer needs and wants.
e) Technological innovation - Unlike large and highly
capitalized businesses, technological innovations
threaten solo and small players in the game of
productivity and efficiency.
f) If market becomes unattractive, the firm's prospects
can quickly dim — It implies that lack, dwindling or zero
demand for the product means eventual exit from the
business unlike conglomerates or diversified business
firms who may simply drop off one business unit or
product and still continue their business with the
remaining products at hand.
g) Options to grab other opportunities are limited - Being
alone with limited resources makes it somehow difficult to
take advantage of other opportunities. Indeed, being
alone means living with what the company can afford and
forego or miss out other opportunities.
h) Entry of substitutes — Technology developments open
up new opportunities for other entrepreneurs to join the
competition brandishing other kinds of products acting as
replacements or substitutes which may come at cheaper
or attractive prices or offers.
 5.7 Competitive Strengths of Business Level
Strategy
While there are risks for single business concerns, there
are competitive strengths in being a single business unit
particularly in the area of developing business level
strategy as compared to large or group of business
concerns. To name a few, the following are the pluses of a
single business in the context of developing business
level strategy:

a) less ambiguity about "who we are;" b)

b) energies of firm can be directed to a single business
path and keeping strategy responsive to industry change;
c) less chance resources will be stretched thinly over too
many competing activities;
d) resources can be focused on building competencies
and capabilities that make the firm better at what it does;
e) higher probability innovative ideas will emerge;
f) top executives can maintain hands-on contact with core
business;
g) important competencies more likely to emerge;
h) ability to parlay experience and reputation into
sustainable competitive advantage; and
i) prominent leadership position.
 5.8 The Nature of Functional Units

Every business organization, or any formal organization

for that matter, usually has various departments,
divisions or units mandated to do specific task or job
contributory to the overriding goal of making profits. This
is typified by the illustrative diagram shown in Figure 28.
The various departments or divisions are the particular
units doing actions or legworks as well as direct
interactions with clients or customers. These
departments or units are identified in the organizational
chart of the firm which also serve as the basis for the
plantilla or personnel for the organization. Every
functional unit has its own mandate or role to play in the
business organization.
 5.8 The Nature of Functional Units

However, not all of them need not be bothered with

having functional strategies as the nature of work or
function is deemed purely administrative or routine. What
is usually clear and written about the functional
departments are the tasks or job that falls within the
department/unit or what these units are going to do from
which job descriptions of personnel within the
department or unit are drawn upon. How these functional
units will carry out their tasks or what specific strategic
tasks these units will do is usually undocumented or
unwritten. This aspect spells out the difference between
functional responsibilities and functional strategies.
FIGURE 28
 5.9 Functional Responsibilities vs. Functional
Strategies
Functional responsibilities refer to those tasks, function
grout inis thate given drating unit feE, departme, divure
of
its functional category. For example, marketing
department is generally tasked to handle marketing,
sales, promotion, advertising, etc. On the other hand,
production department is tasked to do such jobs as
fabrication, assembly and other tasks related to
production or manufacturing.
Functional strategy is the approach taken by a functional
area or unit to achieve its objectives and duties by way of
maximizing the use of its resources and in light of
strategic direction as well as prevailing market
competitions.
 5.9 Functional Responsibilities vs. Functional
Strategies
Functional strategy broadly addresses how the particular
mandate or duty of a concerned department or unit will
be done and carried out or how it will operationalize its
duties and responsibilities in view of a highly competitive
environment. It is concerned with developing and
nurturing competencies at the department or unit level.
If there are other units much lower than departments or
divisions (e.g., sections or similar smaller units), another
form of strategy - a much more detailed strategy - may
have to be done and this is referred to as operating
strategy.
 5.10 The Role of Functional Strategies

A major factor that determines the competitiveness of the

business level strategy is anchored on the kind and
details of the strategies developed at the level of the
functional units.
Having either a corporate or business level strategy is
meaningful only if it comes with a functional and
operating unit strategies. As shown in Figure 25 and
Figure 26, functional strategy is subordinate to business
level strategy. The functional strategies are articulation
of the corporate or business level strategies at the level
of the various departments of the business organizations.
Very often, the duties and responsibilities of the various
operating functions in the business organization are
defined and elaborated, and in fact, available on record.
 5.10 The Role of Functional Strategies
However, while the functional and departmental duties are
put in writing or on record, departmental strategies are
either absent or not articulately addressed in writing the
reasons why some departments are unable to make strategic
contribution towards the achievement of vision and mission
statement in measurable terms.
As clearly shown in Figure 26, functional strategies must
provide support activities considered strategically important
to the stated corporate or business level objectives. Because
there are many functional departments within the business
organization, it is a must that the strategies of the various
departments must be harmonized into a cohesive and
consistent set of strategies running in series or parallel
activities. Each of the departmental strategies has to be done
in coordination with other departments or units of the
 5.11 Harmony among Functional Strategies

In formulating functional strategies, managers must be aware

that these departmental functions are interreiated as
diagrammatically shown in Figure 29. In attaining its
objectives, each functional area must relate or mesh its
activities with tasks
FIGURE 29
 of other functional departments. Wright, Kroll, et al. (1996)
emphasized that any change in the functional duties of any of
the departments may drive or will invariably affect the way
the other departments operate. Hence, the strategy of one
functional area cannot be viewed in isolation. Rather, the
extent to which all the business units' functional tasks mesh
smoothly determines the effectiveness of the firm's central
strategy. Any change in the functional duties and
responsibilities will surely have a domino effect which can
affect other functional level strategies.
Wright, Kroll, et al. (1996) noted that personnel in each of the
functional area tend to view their operations introspectively
and independently of other functions resulting to discordant
or incoherent strategies as if an orchestra playing without a
musical piece.
 This scenario can be avoided if doing strategic planning
exercise is part of organizational culture and regular
monitoring of functional activities and strategies are
regularly done.
Inconsistent functional strategies will not only deter
achievement of strategic goals but they will also likely to
result to consumer or client dissatisfaction.
More than simply being interrelated, functional and operating
level strategies, the functional units must be developed
taking into account commonality as vision-mission among
various functional and operating level units as illustrated by
the diagram shown in Figure 30. The various functional and
operating level units may have differences in functions,
duties and strategies of doing their tasks but all of these
units have one thing in common - the stated vision-mission
statement.
FIGURE 30
 5.12 Nature and Characteristics of Functional
Strategie
Among the secrets of a good business level strategy is the
content and details of the functional level strategy. Because
they contain operational details, functional level strategies
are usually held confidential among certain parties. In fact, in
some extreme cases, some operational details of certain
strategic and tactical operations are held in confidence or
unknown to some of the players in pursuing the ends of the
strategy if only to get things done.
Whatever the contents of the functional strategies are and to
whom those details are known to, what is important is that in
the end, the functional strategies will deliver the
expectations in real quantifiable numbers within prescribed
periods. In general, the functional strategies have the
following characteristics:
a) it is a game plan for a strategically-relevant function,
activity, or business process
b) it provides details how key activities will be managed
c) it provides a supportive role to the business level strategy
d) it specifies how functional objectives are to be achieved

Moreover, functional strategies highlight the role of every

department or unit in terms of:

a) role and scope of activities of each department or unit

b) it provides the direction which department needs to
pursue
c) it defines the contribution to firm's overall mission
 5.12.1 Examples of functional objectives
As discussed earlier, functional strategies are unit specific.
As a whole, the overall target or objectives of the functional
strategy may not be made public but must be known to all
the members of the unit so that the objectives will be
supplanted in the consciousness of everyone. In the process,
this will serve as motivation and driver for everyone to give
due course. Deep in the minds and hearts of every employee
is a duty to do which is concretely laid down in their
respective performance targets.
The following are just a few of the examples of objectives or
targets of functional level strategies:
a)
Human resource strategy
"To contribute to organizational success by developing
effective leaders, creating high performance teams, and
maximizing the potential of individuals."
b)
Corporate security
"To provide services for the protection of corporate personnel
and assets through preventive measures and investigations."
 5.13 Operating Strategies
Operating strategies are tasks that are more specific
compared to functional strategies as implied in Figure 26. As
the term implies, operating strategies are more operational
compared to functional strategies as the tasks are usually
done at ground level with more precise details. It can come in
the form of functional strategy but on a lower scale context
like the operating strategies for units much lower in size than
a typical functional department (e.g., unit, section, etc.) and
may be temporary in nature (e.g., task force, special project,
etc.).
 5.13.1 Concerns of operating strategies

The general concerns of operating strategy are anchored on

the idea of supporting the functional level strategy. Its
specific concerns are as follows:
a) narrower strategies for managing grassroots activities and
strategically-relevant operating units; and
b) add detail to business and functional strategies.
 5.13.2 Examples of operating strategy

Motivated and driven by the functional level strategy,

operating unit needs to articulate in detail as how to go
about delivering the expectations at the unit level. The
following are examples of operating strategy:
FIGURE 31
FIGURE 32
a) Improving Delivery and Order-Filling
Manufacturer of plumbing equipment emphasizes quick
delivery and accurate order-filling as keystones of its
customer service approach. Warehouse manager takes the
following approaches:

i. Inventory stocking strategy allowing 99% of all orders to be

completely filled without backordering any item; and
ii. Staffing strategy of maintaining workforce capability to
ship any order within 24 hours.

b) Boosting Worker Productivity

To boost productivity by 10%, managers of firm with low-
price, high-volume strategy take the following actions:
i. Recruitment manager develops selection process designed
to weed out all but best-qualified candidates;
ii. Information systems manager devises ways to use
technology to boost productivity of office workers;
iii. Compensation manager devises improved incentive
compensation plan; and
iv. Purchasing manager obtains new efficiency-increasing
tools and equipment.
 5.14 Strategic Business-Level Options

The principles in strategic options to grow or expand as

discussed in the corporate level strategies (refer to Chapter
2) are in a way applicable as strategic business options. In
principle, the variety of growth, stability and retrenchment
strategies discussed in Chapter 2 can be considered as
business level option if the top leadership has bold strategic
ambitions and it has all the resources to do so as well as a
burning desire and bulldog tenacity to compete in the
market. In reality, a single business unit is constrained by a
variety of factors that limit its operation within the business
or industry it is currently operating. Given this, the strategic
business option is limited by its resources and internal
capacity.
Very otten, single business units are limited to varying their
marketing strategies for a particular product or service and
to a certain extent, developing other products or services.
Available to single business units as strategic business
options are marketing-related in context like product
development, market penetration and market development.
These options which any independent or single business unit
can pursue are briefly described as follows:

a) Product development option. As a strategy, product

development is a research and development option that
seeks to develop new product or service resulting to a variety
of products or services the company can offer thereby
accessing other market segments or sectors.
 Through in-house research and development along with
market research efforts, small business organizations will be
able to develop a new product or service which they can
launch as they wish to. If product research and development
as well as market research is not within the capability of the
company, then the company can commission external
consultants to the job or simply do a low-end research
activity which in the end will hopefully enable the firm to
develop and launch a different or innovative kind of product
or service.
b) Market development. As a strategy, market development
seeks to explore additional market share by developing other
markets in other geographical areas using the same line of
products or services. In other words, if the existing market
served by the business is getting highly competitive and too
difficult for the firm to make a profit, then it can explore or
develop other market areas by branching out or serving other
 c) Market penetration. As a strategy, market penetration is
pursuing concentrated and vigorous efforts to push a product
or service using a variety of marketing strategies or tools
generally focused on promotional efforts. It concerns with
dealing with existing products or services but it requires
substantial marketing efforts to push harder the product to
expand sales in the same market segment or to serve and
penetrate other markets in the same location.
 5.14.1 Situations favoring product development

Whenever practical and possible, product development

options should be explored. Product development strategy is
favorable under the following situations:

a) when an organization has successful products that are in

the maturity stage of the product life cycle; the idea here is
to attract satisfied customers to try new (improved) products
as a result of their positive experience with the organization's
present products or services;
b) when an organization competes in an industry that is
characterized by rapid technological developments;
c) when major competitors offer better-quality products at
comparable prices;
d) when an organization competes in a high-growth industry;
and
e) when an organization has especially strong research and
development capabilities.
5.14.2 Situations favoring market development

When the following situations or scenarios occur, it is

logically an attractive option to go into market development:
a) when new channels of distribution are available that are
reliable, inexpensive, and of good quality
b) when an organization is very successful at what it does
c)when new untapped or unsaturated markets exist
d)when an organization has the needed capital and human
resources to manage expanded operations
e) when an organization has excess production capacity
f) when an organization's basic industry rapidly is becoming
global in scope
 5.14.3 Situations favoring market penetration
There are situations or scenarios where it is considered
appropriate to venture into market penetration as a strategic
option. When the following situations exist, it is deemed to be
conducive to possibly consider market penetration options:
a) when current markets are not saturated with a particular
product or service
b) when the usage rate of present customers could be
increased significantly
c) when the market shares of major competitors have been
declining while total industry sales have been increasing
d) when the correlation between dollar sales and dollar
marketing expenditures historically has been high
e) when increased economies of scale provide major
competitive advantages
 5.15 Generic Performance Improvement
Strategies
Improving the performance of the business may come in many
different ways and approaches or strategies. Any option that
may have to be taken is a matter of justifying the efforts
taking into account the stated vision-mission and the level of
data or information available to the top management at the
time the strategy was crafted. Under any circumstance, the
desire to improve the performance of the business is a generic
consideration. For instance, the need to improve the
performance could be in terms of sales volume to be
generated or the level of profit expectations.
 5.15 Generic Performance Improvement
Strategies
In this particular consideration, G. S. Day (1984) has
developed a working diagram that will serve as a guide as
shown in Figure 33.
As shown in Figure 33, the need to improve sales volume can
be addressed by considering such options as market
penetration, product development, market development, and
forward integration. On the other hand, the need to address
improvement in profit expectations can be dealt with by
considering such options as increase yield, reduce costs,
vertical integration, reduce investment intensity and
selectivity/focus.
FIGURE 33
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