Functional strategy

Functional Strategies
The third level of strategic planning is functional strategies, which are derived from the tactical strategies. Each
functional area or department is assigned the specific goals and objectives it must achieve to support the higher-
level strategies and planning. Functional strategies specify outcomes to be achieved from the daily operations of
specific departments or functions. Functional strategies reflect that strategic and tactical objectives typically
require the involvement of multiple functional areas, such as departments, divisions, and branches. Thus, the
tactical plan is divided into the tasks and objectives of each functional area.
For example, the functional strategy for the marketing department in support of the business' goal to increase
market share is likely to include identification of new market segments, brand identification programs, and others.
Additionally, the production function may be assigned a reduced rejection rate for the product in question.
The functional areas of a business that are commonly assigned function-specific goals are human resources,
production, research and development, marketing, and perhaps information technology. Of course, the functional
areas that are assigned functional strategies depend on the plan itself and vary by industry, organization, or size.
A functional strategy, for any business, large or small, focuses the achievement of a goal on the skills and
abilities of individual departments and their employees. In other words, a functional strategy is a short-term plan
for achieving one or more goals of a business by one or more functional areas.

Operational v. Functional Strategies

Functional strategies and operational strategies are often confused. While they typically share similar intentions,
such as achieving strategic goals, they differ in application and scope. Operational strategies define how an
entire business will allocate its resources to support operations and its strategic goals. Operational strategies,
which address the operational areas of a business, focus on maximizing the efficiency and effectiveness of
production while minimizing operating costs. Functional strategies can be derived from operational strategies, but
can be assigned to any functional area or combination of areas.

nterrelationships Among Functional Departments

To better understand the role of functional strategies, they must be differentiated from
business strategies.

Three basic characteristics differentiate functional and business strategies:

Time horizon covered

The time horizon of a functional strategy is usually comparatively short.

Functional strategies identify and coordinate short- term actions, usually
undertaken in a year or less.

Specificity

A functional strategy is more specific than business strategy. The business

strategy provides general direction. Functional strategies give specific guidance
to managers responsible for accomplishing annual objectives.

Participation in the development

Different people participate in strategy development at the functional and

business levels. Development of functional strategy is typically delegated by the
business-level manager to principal subordinates charged with running the
 operating areas of the business. Business strategy is the responsibility of the
general manager of a business unit.

Firms vary in the organization and responsibilities of their functional areas, but the major
functional areas are purchasing and materials management, production/operations,
marketing, finance, human resources, research and development, and information
systems management.

Moreover, overall strategic success requires that all functional activities be tightly
integrated with a business unit's generic strategy. This is shown in Table 10-1.

The entries in the left column represent the generic strategy that a given business unit is
following. The horizontal entries to the right indicate the particular strategy that should be
used by each of the business unit's functional areas.

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 Purchasing And Materials Management

Table of contents
Functional Strategies

 Interrelationships Among Functional Departments

 Purchasing And Materials Management
o Purchasing
o Purchasing Perspective
o Purchasing Staff
o Effective Procedures
o Negotiating With Vendors
o Buying Imported Supplies
o Purchasing Strategies
 Functional Strategies In Production / Operations
 Functional Strategies In The Marketing Area
o Marketing Concept
o Functional Strategies In The Marketing Area
o New Marketing Mix
o Managing Product Life Cycles And Strategies
o Product-mix Decisions
 Product-line Decisions
o Product/service Strategy
o Packing And Labelling Decisions
o Innovative Packing Strategies
o New Products And Services
o The Consumer Adoption Process
o Pricing Strategy
o The Strategic Value Of Price Structure
 o Designing Pricing Strategies And Programs
o Setting The Price
o Adapting The Price
o Initiating And Responding To Price Changes
o A Functional Strategy For The Place Component
o Distribution Strategy
o Product Positioning
o Market Segmentation Strategy
o Business Segmentation Approaches
o How To Segment Industrial Markets
o Segment By Applications

Functional strategies describe the means or methods to be used by each functional area
of the organization in carrying out the corporate-level or business unit strategy. The
functional areas of organizations normally include: product/ operations, marketing,
finance, human resources, research and development, and information systems
management.

Production/operations management (POM) is the basic function in the business firm.

This function of a business consists of all those activities that transform inputs into goods
and services. POM must guide decisions regarding: the technical core, quality, capacity,
facilities, technology and production planning and control. The need for consistency
among these six decisions is highlighted.

Marketing can be described as the process of defining, anticipating, creating, and

fulfilling customers' needs and wants for products and services. The major decisions in
marketing strategy concern the product/service, price, place/distribution, and
promotion/advertising. The key is to strive for consistency among these elements.

Financial management is primarily concerned with two functions: (1) acquiring funds to
meet the organization's current and future needs; (2) recording, monitoring, and
controlling the financial results of an organization's operations. Therefore, the major
decisions in financial strategy concern objectives, profitability, liquidity and cash
management, leverage and capital management, asset management, investment ratios,
and financial planning and control.

Human resource strategies concern human resource planning, recruitment and

selection, training and development, compensation and rewards, employment security,
and labor relations. Functional strategies in human resource management should guide
the effective utilization of human resources to achieve both the objectives of the firm and
the satisfaction and development of employees.

Research and development (R&D) has two basic components: product/service R&D and
process R&D. Research and development strategy concerns the relationship of R&D to
business strategy. Business units competing with the niche-low-cost and low-cost
strategies emphasize process R&D to reduce their operations costs; those the use
niche-differentiation or differentiation place greater importance on product/service R&D;
and adopters for niche-low-cost-differentiation, low-cost-differentiation, and multiple
strategies simultaneously both types of R&D. With the increasing of technological
change R&D has assumed a key functional role in many organizations.

An information system which provides accurate, timely, and relevant information for use
in the strategic decision process is an important organizational resource

Overall strategic success requires that all functional activities be tightly integrated so that
their operation mesh smoothly with one another. In this term, functional strategies are
importance tool for effective implementation of a business strategy.