CA IPCC Strategic Management Notes Formulation Of Functional Strategy Notes

CHAPTER 5

Formulation Of Functional Strategy

FUNCTIONAL AREA STRATEGY:

(Marketing, financial, production and Human Resource), is based on the functional capability factors. For each functional area, first the major sub areas are identified and then follow a discussion of each of these sub functional areas regarding the content of functional strategies, important factors, and their importance in the process of strategy implementation.

In terms of the levels of strategy formulation, functional strategies operate below the SBU or business-level strategies. Within functional strategies, there might be several sub-functional areas. Functional strategies are made within the guidelines set at higher levels. Functional managers need guidance from the business strategy.

THE REASONS WHY FUNCTIONAL STRATEGIES ARE NEEDED:

♦ Implementation: The strategic decisions are implemented by all the parts of an organization.

♦ Control: There is a basis available for controlling activities in the different functional areas of business.

♦ Managerial Efficiency: The time spent by functional managers in decision-making is reduced as plans lay down clearly what is to be done and policies provide the discretionary framework within which decisions need to be taken.

♦ Consistency : Similar situations occurring in different functional areas are handled in a consistent manner by the functional managers.

♦ Coordination: Coordination across the different functions takes place where necessary.

♦   Feasibility: The development of functional strategies is aimed at making the strategies formulated at the top management level practically feasible at the functional level.

The factors that affect Functional Strategy are:

1. Corporate Strategies.
2. Environmental Factors relevant to each functional area
3. Resource Allocation decisions
4. Other objective and subjective factors, e.g. measurability, need for harmonising different work areas, availability of choice/options etc.

1. 1.       MARKETING STRATEGY FORMULATION

Figure: Value Delivery Network

2.1 Marketing Issues: Countless marketing variables affect the success or failure of strategy implementation. Some examples of marketing decisions that may require policies are as follows:

1. To use exclusive dealerships or multiple channels of distribution.

2. To use heavy, light, or no TV advertising.

3. To limit (or not) the share of business done with a single customer.

4. To be a price leader or a price follower.

5. To offer a complete or limited warranty.

6. To reward salespeople based on straight salary, straight commission, or a combination   salary/commission.

7. To advertise online or not.

The Marketing Process:

♦ Once the strategic plan has defined the company’s overall mission and objectives’, marketing plays a role in carrying out these objectives.

♦ The marketing process is the process of analyzing market opportunities, selecting target markets, developing the marketing mix, and managing the marketing effort.

♦ Target customers stand at the centre of the marketing process.

Connecting with consumers

To succeed in today’s competitive marketplace, companies must be customer centred. They must win customers from competitors and keep them by delivering greater value. Since companies cannot satisfy all consumers in a given market, they must divide the total market (market segmentation), choose the best segments (market targeting), and design strategies for profitably serving chosen segments better than the competition (market positioning).

Developing the marketing mix

Once the company has decided on its overall competitive marketing strategy, it is ready to begin planning the details of the marketing mix. The marketing mix is the set of controllable marketing variables that the firm blends to produce the response it wants in the target market. The marketing mix consists of everything that the firm can do to influence the demand for its product. These variables are often referred to as the “four Ps.”

✔  Product

✔  Price

✔  Place

✔  Promotion

Expanded Marketing Mix : In addition to the traditional four Ps the new marketing mix (particularly for services) includes people, physical evidences and process.

✔  People : all human actors who play a part in delivery of the market offering and thus influence the buyer’s perception, namely the firm’s personnel and the customer.

✔  Physical evidence: the environment in which the market offering is delivered and where the firm and customer interact.

✔  Process: the actual procedures, mechanisms and flow of activities by which the product / service is delivered.

MARKET ANALYSIS:

Market Analysis is performed by:

• Identifying environmental opportunities and threats,
• Analysing strengths and weaknesses to determine which opportunities the Company can best pursue.
• Feeding information and other inputs to each other marketing management functions.

Areas to be analysed include:

1. Task Environment: i.e. forces close to the Company, e.g. (a) ability to serve the customers (b) other Company Departments (c) Distribution Channel members  (d) Suppliers  (e) Competitors (f) Customers.
2. General Environment : i.e. Broader forces like – (a) demographic and economic (b) political and legal forces (c) technological and ecological factors (d) social and cultural factors.