Chapter 7

Strategy Formulation:
Functional Strategy and
Strategic Choice

Functional Strategy
Determining Functional Strategy:

Identify business units core competencies.

Ensure that competencies are continually

strengthened.

Manage competencies so that competitive

advantage is preserved.

Functional Strategy
Core competency:
Something that a corporation can do
exceedingly well a key strength.
Can be a core capability
Includes a number of key constituent skills.

Distinctive competencies:
When core competencies or core capabilities
are superior to those of the competition.

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 Sourcing Decision
Outsourcing is purchasing from someone else a
product or service that had been previously
provided internally.
Increasingly important part of strategic decision
making.
An important way to increase efficiency and quality.
Global implications.

The key to outsourcing is to purchase from the

outside only those activities that are not key to
the companys distinctive competencies.

Marketing Strategy
Marketing Strategy - deals with pricing, selling, and
distributing a product.

Market Development Strategy - a company or SBU can :

Capture a larger share of an existing market for current
products through market saturation and market
penetration.
Develop new markets for current products.

Product Development Strategy - a company or SBU can:

Develop new products for existing markets.
Develop new products for new markets.

Financial Strategy

Financial strategy

Examines the financial implications of

corporate and business-level strategic
options and identifies the best
financial course of action.

Identifies and maximizes financial value of

the firm

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 R&D Strategy

R&D Strategy
Deals with product and process innovation
and improvement.

Choice:
Technological leader Firm who pioneers
innovation.
Technological follower Firm who imitates the
products of competitors.

Operations Strategy
Manufacturing strategy
Affected by product life cycle:
Job shop
Connected line batch flow
Flexible manufacturing system
Dedicated transfer lines

Movement from mass production to:

Continuous improvement
Modular manufacturing
Mass customization

Purchasing / Logistics Strategy

Purchasing strategy
Obtaining raw materials, parts and supplies
Basic Purchasing Choices:
Multiple sourcing
Sole sourcing
Parallel sourcing

Logistics strategy
Flow of products into and out of the process
Three current trends:
Centralization
Outsourcing
Use of the Internet

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 Strategic Choice
Selecting the Best Strategy:

Constructing Corporate Scenarios:

Pro forma balance sheets and income
statements that forecast effects of alternatives
on return on investment.
Steps in constructing scenarios
Use industry scenarios to develop assumptions.
Develop common-size financial statements to serve as
trend analysis.
Construct detailed pro forma financial statements for
each alternative using an optimistic, pessimistic,
and most likely alternative!

Strategic Choice
Process of Strategic Choice:

Devils Advocate
Identify potential pitfalls and problems with a
proposed alternative strategy in a formal
presentation.

Dialectical Inquiry
Two proposals are generated using different
assumptions for each alternative strategy.
The Thesis and Antithesis
A Synthesis

Strategic Choice

Evaluating strategic alternatives:

Ability to meet four criteria:

Mutual exclusivity
Success
Completeness
Internal consistency