Functional the approach a functional area takes to achieve corporate and business unit objectives and strategies by job

job shop one-of-a-kind production using skilled labor

strategy maximizing resource productivity. It is concerned with developing and nurturing a distinctive competence to batch flow components are standardized; each machine functions such as a job shop but is
provide a company or business unit with a competitive advantage. positioned in the same order as the parts are processed
Marketing deals with pricing, selling, and distributing a product flexible manufacturing parts are grouped into manufacturing families to produce a wide variety of mass-
strategy market A company or business unit can (1)capture a larger share of an existing market systems produced items
development for current products through market saturation and market penetration or (2) dedicated transfer highly automated assembly lines making one mass-produced product using little
strategy develop new uses and/ or markets for current products lines human labor
product a company or unit can (1) develop new products for existing markets or (2) mass-production excellent method to produce a large number of low-cost, standard goods and
development develop new products for new markets system services.
strategy Using a successful brand name to market other products is called brand continuous developed by Japanese firms, empowered cross-functional teams strive
extension, and it is a good way to appeal to a company’s current customers. improvement system constantly to improve production processes.
advertisin Push spending a large amount of money on trade promotion in order to gain or modular preassembled subassemblies are delivered as they are needed (i.e., Justin-Time)
g and strategy hold shelf space in retail outlets. Trade promotion includes discounts, in-store manufacturing to a company’s assembly-line workers, who quickly piece the modules together
promotion special offers, and advertising allowances designed to “push” products into a finished product
through the distribution system Purchasing deals with obtaining the raw materials, parts, and supplies needed to perform the operations function.
Pull advertising “pulls” the products through the distribution channels. The strategy Purchasing strategy is important because materials and components purchased from suppliers comprise 50%
strategy company now spends more money on consumer advertising designed to build of total manufacturing costs of manufacturing
brand awareness so that shoppers will ask for the products. multiple sourcing purchasing company orders a particular part from several vendors
Pricing Skim offers the opportunity to “skim the cream” from the top of the demand sole sourcing relies on only one supplier for a particular part
pricing curve with a high price while the product is novel and competitors are few Just-In-Time (JIT) - concept of having the purchased parts arrive at the plant just
Penetration attempts to hasten market development and offers the pioneer the when they are needed rather than keeping inventories
pricing opportunity to use the experience curve to gain market share with a low parallel sourcing two suppliers are the sole suppliers of two different parts, but they are also
price and then dominate the industry backup suppliers for each other’s parts. If one vendor cannot supply all of its parts
more likely than skim pricing to raise a unit’s operating profit in the long on time, the other vendor is asked to make up the difference
term Logistics deals with the flow of products into and out of the manufacturing process. Three trends related to this
Dynamic a practice in which prices vary frequently based upon demand, market strategy strategy are evident: centralization, outsourcing, and the use of the Internet
pricing segment, and product availability HRM addresses the issue of whether a company or business unit should hire a large number of low-skilled
use of the Internet to market goods directly to consumers strategy employees who receive low pay, perform repetitive jobs, and are most likely quit after a short time (the
Financial examines the financial implications of corporate and business-level strategic options and identifies the best McDonald’s restaurant strategy) or hire skilled employees who receive relatively high pay and are cross-
Strategy financial course of action. It can also provide competitive advantage through a lower cost of funds and a trained to participate in self managing work teams
flexible ability to raise capital to support a business strategy. Financial strategy usually attempts to maximize IT Strategy follow-the-sun management, in which project team members living in one country can pass their work to
the financial value of a firm. team members in another country in which the work day is just beginning. Thus, night shifts are no longer
a firm’s financial strategy is Equity financing preferred for related diversification needed
influenced by its corporate debt financing preferred for unrelated diversification
diversification strategy Location of Outsourcing is purchasing from someone else a product or service that had been previously provided
Leveraged A company is acquired in a transaction financed largely by debt, usually obtained from Functions internally. Thus, it is the reverse of vertical integration
buyout a third party, such as an insurance company or an investment banker 7 major errors that should be avoided:
Research deals with product and process innovation and improvement. It also deals with the appropriate mix of 1. Outsourcing activities that should not be outsourced: Companies failed to keep
and different types of R&D (basic, product, or process) and with the question of how new technology should be core activities in-house.
Developmen accessed—through internal development, external acquisition, or strategic alliances. 2. Selecting the wrong vendor: Vendors were not trustworthy or lacked state-of-the-
t (R&D) R&D Choices art processes.
Strategy technological leader pioneering an innovation 3. Writing a poor contract: Companies failed to establish a balance of power in the
Ex: differentiation competitive advantage is Nike, Inc relationship.
technological follower imitating the products of competitors 4. Overlooking personnel issues: Employees lost commitment to the firm.
Ex: a low-cost competitive advantage 5. Losing control over the outsourced activity: Qualified managers failed to manage
open innovation a firm uses alliances and connections with corporate, government, academic the outsourced activity.
labs, and even consumers to develop new products and processes 6. Overlooking the hidden costs of outsourcing: Transaction costs overwhelmed other
Operations determines how and where a product or service is to be manufactured, the level of vertical integration in savings.
strategy the production process, the deployment of physical resources, and relationships with suppliers. It should 7. Failing to plan an exit strategy: Companies failed to build reversibility clauses into
also deal with the optimum level of technology the firm should use in its operations processes the contract.
Advanced is revolutionizing operations worldwide and should continue to have a major
Manufacturing impact as corporations strive to integrate diverse business activities by using Offshoring is the outsourcing of an activity or a function to a wholly owned company or an
Technology (AMT) computer assisted design and manufacturing (CAD/CAM) principles independent provider in another country. Offshoring is a global phenomenon that has
 been supported by advances in information and communication technologies, the 2 techniques help avoid the consensus trap that Alfred Sloan found
development of stable, secure, and high-speed data transmission systems
Proposed Activity’s Activity’s Total Devil’s The idea of the devil’s advocate originated in the medieval Roman Catholic Church as a way of ensuring that
Outsourcing Potential for Value-Added to advocate impostors were not canonized as saints. One trusted person was selected to find and present all the reasons
Matrix Competitive Firm’s Products and why a person should not be canonized. When this process is applied to strategic decision making, a devil’s
Advantage Services advocate (who may be an individual or a group) is assigned to identify potential pitfalls and problems with a
High Low Taper Vertical Integration: Produce proposed alternative strategy in a formal presentation.
Some Internally Dialectical The dialectical philosophy, which can be traced back to Plato and Aristotle and more recently to Hegel,
High High Full Vertical Integration: Produce All inquiry involves combining two conflicting views—the thesis and the antithesis—into a synthesis. When applied to
Internally strategic decision making, dialectical inquiry requires that two proposals using different assumptions be
Low Low Outsource Completely: Buy on Open generated for each alternative strategy under consideration. After advocates of each position present and
Market debate the merits of their arguments before key decision makers, either one of the alternatives or a new
Low High Outsource Completely: Purchase with compromise alternative is selected as the strategy to be implemented
Long-Term Contracts
Strategies to Avoid 4 criteria used to evaluate generated strategic alternatives
Mutual Exclusivity Doing any one alternative would preclude doing any other
Follow the Imitating a leading competitor’s strategy might seem to be a good idea, but it ignores a firm’s particular
Success It must be feasible and have a good probability of success
leader strengths and weaknesses and the possibility that the leader may be wrong.
Completeness It must take into account all the key strategic issues
Hit another If a company is successful because it pioneered an extremely successful product, it tends to search for
home run another super product that will ensure growth and prosperity. As in betting on long shots in horse races, the Internal Consistency It must make sense on its own as a strategic decision for the entire firm and not contradict key
probability of finding a second winner is slight. Polaroid spent a lot of money developing an “instant” movie goals, policies, and strategies currently being pursued by the firm or its units
camera, but the public ignored it in favor of the camcorder
Arms race Entering into a spirited battle with another firm for increased market share might increase sales revenue, Policies
but that increase will probably be more than offset by increases in advertising, promotion, R&D, and  define the broad guidelines for implementation
manufacturing costs. Since the deregulation of airlines, price wars and rate specials have contributed to the  provide guidance for decision making and actions throughout the organization
low profit margins and bankruptcies of many major airlines, such as Eastern  They are the principles under which the corporation operates on a day-to-day basis
Do When faced with several interesting opportunities, management might tend to leap at all of them. At first,  gave clear guidance to managers throughout the organization
everything a corporation might have enough resources to develop each idea into a project, but money, time, and energy
are soon exhausted as the many projects demand large infusions of resources. The Walt Disney Company’s When crafted correctly, an effective policy accomplishes three things:
expertise in the entertainment industry led it to acquire the ABC network. As the company churned out new  It forces trade-offs between competing resource demands.
motion pictures and television programs such as Who Wants to Be a Millionaire? it spent $750 million to  It tests the strategic soundness of a particular action.
build new theme parks and buy a cruise line and a hockey team. By 2000, even though corporate sales had  It sets clear boundaries within which employees must operate while granting them freedom to experiment within those
continued to increase, net income was falling constraints
Losing hand A corporation might have invested so much in a particular strategy that top management is unwilling to
accept its failure. Believing that it has too much invested to quit, management may continue to throw “good
money after bad.” Pan American Airlines, for example, chose to sell its Pan Am Building and Intercontinental
Hotels, the most profitable parts of the corporation, to keep its money-losing airline flying. Continuing to
suffer losses, the company followed this profit strategy of shedding assets for cash until it had sold off
everything and went bankrupt

Corporate scenarios are pro forma (estimated future) balance sheets and income statements that forecast the effect each
alternative strategy and its various programs will likely have on division and corporate return on investment
Risk is composed not only of the probability that the strategy will be effective but also of the amount of assets the corporation
must allocate to that strategy and the length of time the assets will be unavailable for other uses
Real-options approach, when the future is highly uncertain, it pays to have a broad range of options open.
Net present value (NPV) to calculate the value of a project by predicting its payouts, adjusting them for risk, and subtracting
the amount invested.

Top management can also propose a political strategy to influence its key stakeholders
political plan to bring stakeholders into agreement with a corporation’s actions.
strategy Some of the most commonly used political strategies are constituency building, political action committee
contributions, advocacy advertising, lobbying, and coalition building
Strategic choice is the evaluation of alternative strategies and selection of the best alternative.