Functional Level Strategies: Notes | Financial Management & Strategic Management for CA Intermediate PDF Download

 Page 1


 
LEARNING OUTCOMES 
 
FUNCTIONAL LEVEL
STRATEGIES 
After studying this chapter, you will be able to - 
? Identify the various functional areas of business for strategy 
formulation. 
? Analyse the elements of marketing, financial, production, R 
& D and human resource strategies. 
? Explain the strategic importance of supply chain 
management. 
? Highlight the strategic role of the various functional 
strategies. 
Most of the time, strategists should not be formulating strategy at all; 
they should be getting on with implementing strategies they already 
have.
Henry Mintzberg
CHAPTER 
6 
Page 2


 
LEARNING OUTCOMES 
 
FUNCTIONAL LEVEL
STRATEGIES 
After studying this chapter, you will be able to - 
? Identify the various functional areas of business for strategy 
formulation. 
? Analyse the elements of marketing, financial, production, R 
& D and human resource strategies. 
? Explain the strategic importance of supply chain 
management. 
? Highlight the strategic role of the various functional 
strategies. 
Most of the time, strategists should not be formulating strategy at all; 
they should be getting on with implementing strategies they already 
have.
Henry Mintzberg
CHAPTER 
6 
 
 
STRATEGIC MANAGEMENT 
6.2 
 
 
 6.1 INTRODUCTION 
Once higher level corporate and business strategies have been developed, 
management  must formulate and implement strategy for each of the functional 
areas of business. Strategy of one functional area cannot be looked at in isolation. 
Different functional areas of the business are interwoven together and how a 
functional strategy is synergised with other functional strategies determines its 
effectiveness. 
Functional strategies are designed to help in the implementation of corporate 
and business unit level strategies. For effective implementation, the strategists 
have to provide direction to the functional managers regarding the plans and 
policies to be adopted. In fact, the effectiveness of strategic management 
depends critically on the manner in which strategies are implemented. Functional 
strategies provide details to business strategy and govern as to how key activities 
of the business are to be managed.  
Functional
Strategy
Marketing 
Strategy
Financial
Strategy
Production 
Strategy
Logistics
Strategy
Research and 
Development 
Strategy
Human 
Resource
Strategy
CHAPTER OVERVIEW 
 
Page 3


 
LEARNING OUTCOMES 
 
FUNCTIONAL LEVEL
STRATEGIES 
After studying this chapter, you will be able to - 
? Identify the various functional areas of business for strategy 
formulation. 
? Analyse the elements of marketing, financial, production, R 
& D and human resource strategies. 
? Explain the strategic importance of supply chain 
management. 
? Highlight the strategic role of the various functional 
strategies. 
Most of the time, strategists should not be formulating strategy at all; 
they should be getting on with implementing strategies they already 
have.
Henry Mintzberg
CHAPTER 
6 
 
 
STRATEGIC MANAGEMENT 
6.2 
 
 
 6.1 INTRODUCTION 
Once higher level corporate and business strategies have been developed, 
management  must formulate and implement strategy for each of the functional 
areas of business. Strategy of one functional area cannot be looked at in isolation. 
Different functional areas of the business are interwoven together and how a 
functional strategy is synergised with other functional strategies determines its 
effectiveness. 
Functional strategies are designed to help in the implementation of corporate 
and business unit level strategies. For effective implementation, the strategists 
have to provide direction to the functional managers regarding the plans and 
policies to be adopted. In fact, the effectiveness of strategic management 
depends critically on the manner in which strategies are implemented. Functional 
strategies provide details to business strategy and govern as to how key activities 
of the business are to be managed.  
Functional
Strategy
Marketing 
Strategy
Financial
Strategy
Production 
Strategy
Logistics
Strategy
Research and 
Development 
Strategy
Human 
Resource
Strategy
CHAPTER OVERVIEW 
 
 
 
6.3 
FUNCTIONAL LEVEL STRATEGIES 
Functional strategies play two important roles. Firstly, they provide support to the 
overall business strategy. Secondly, they spell out as to how functional managers 
will work so as to ensure better performance in their respective functional areas. 
Strategies in functional areas including marketing, financial, production, R & D 
and human resource management are based on the functional capabilities of an 
organisation. For each functional area, first the major sub areas are identified and 
then for each of these sub areas, content of functional strategies, important 
factors, and their importance in the process of strategy implementation are 
identified. 
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 framework 
of corporate level strategies and guidelines therein that are set at higher levels of 
the organization. Operational plans at the SBU level tell the functional managers 
what has to be done while policies state how the plans are to be implemented. 
Need for Functional Strategies: 
The reasons why functional strategies are needed can be enumerated as follows:  
? Functional strategies lay down clearly what is to be done at the functional 
level. They provide a sense of direction to the functional staff. 
? They are aimed at facilitating the implementation of corporate strategies 
and the business strategies formulation at the business level.  
? They act as basis for controlling activities in the different functional areas of 
business. 
? They help in bringing harmony and coordination as they are formulated to 
achieve major strategies.  
? These strategies help the functional managers in handling similar situations 
occurring in different functional areas in a consistent manner. 
Thus, top level strategies need to be segregated into viable functional plans and 
policies that are compatible with each other. In this way, strategies can be 
implemented by the functional managers. Environmental factors relevant to each 
functional and the corporate strategies influence the formulation of functional 
strategies.  
Page 4


 
LEARNING OUTCOMES 
 
FUNCTIONAL LEVEL
STRATEGIES 
After studying this chapter, you will be able to - 
? Identify the various functional areas of business for strategy 
formulation. 
? Analyse the elements of marketing, financial, production, R 
& D and human resource strategies. 
? Explain the strategic importance of supply chain 
management. 
? Highlight the strategic role of the various functional 
strategies. 
Most of the time, strategists should not be formulating strategy at all; 
they should be getting on with implementing strategies they already 
have.
Henry Mintzberg
CHAPTER 
6 
 
 
STRATEGIC MANAGEMENT 
6.2 
 
 
 6.1 INTRODUCTION 
Once higher level corporate and business strategies have been developed, 
management  must formulate and implement strategy for each of the functional 
areas of business. Strategy of one functional area cannot be looked at in isolation. 
Different functional areas of the business are interwoven together and how a 
functional strategy is synergised with other functional strategies determines its 
effectiveness. 
Functional strategies are designed to help in the implementation of corporate 
and business unit level strategies. For effective implementation, the strategists 
have to provide direction to the functional managers regarding the plans and 
policies to be adopted. In fact, the effectiveness of strategic management 
depends critically on the manner in which strategies are implemented. Functional 
strategies provide details to business strategy and govern as to how key activities 
of the business are to be managed.  
Functional
Strategy
Marketing 
Strategy
Financial
Strategy
Production 
Strategy
Logistics
Strategy
Research and 
Development 
Strategy
Human 
Resource
Strategy
CHAPTER OVERVIEW 
 
 
 
6.3 
FUNCTIONAL LEVEL STRATEGIES 
Functional strategies play two important roles. Firstly, they provide support to the 
overall business strategy. Secondly, they spell out as to how functional managers 
will work so as to ensure better performance in their respective functional areas. 
Strategies in functional areas including marketing, financial, production, R & D 
and human resource management are based on the functional capabilities of an 
organisation. For each functional area, first the major sub areas are identified and 
then for each of these sub areas, content of functional strategies, important 
factors, and their importance in the process of strategy implementation are 
identified. 
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 framework 
of corporate level strategies and guidelines therein that are set at higher levels of 
the organization. Operational plans at the SBU level tell the functional managers 
what has to be done while policies state how the plans are to be implemented. 
Need for Functional Strategies: 
The reasons why functional strategies are needed can be enumerated as follows:  
? Functional strategies lay down clearly what is to be done at the functional 
level. They provide a sense of direction to the functional staff. 
? They are aimed at facilitating the implementation of corporate strategies 
and the business strategies formulation at the business level.  
? They act as basis for controlling activities in the different functional areas of 
business. 
? They help in bringing harmony and coordination as they are formulated to 
achieve major strategies.  
? These strategies help the functional managers in handling similar situations 
occurring in different functional areas in a consistent manner. 
Thus, top level strategies need to be segregated into viable functional plans and 
policies that are compatible with each other. In this way, strategies can be 
implemented by the functional managers. Environmental factors relevant to each 
functional and the corporate strategies influence the formulation of functional 
strategies.  
 
 
STRATEGIC MANAGEMENT 
6.4 
 6.2 MARKETING STRATEGY 
Marketing is a social and managerial process by which individuals and groups obtain 
what they need and want through creating, offering and exchanging products of value 
with others.          Philip Kotler and Gary Armstrom
Marketing is an activity performed by all business organizations. It is an activity 
that creates and sustains exchange relationships among those who are willing and 
able to buy and sell products, services, satisfaction and even ideas. In the present 
day business, marketing encompasses all the activities related to identifying the 
needs of customers and taking such actions to satisfy them in return of some 
consideration. In marketing it is more important to do what is strategically right 
than what is immediately profitable.  
The term marketing constitutes different processes, functions, exchanges and 
activities that create perceived value by satisfying needs of individuals. Marketing 
induces or helps in moving people closer to making a decision to purchase and 
facilitate a sale.  
Marketing in recent decades has gained a lot of importance because of a number 
of factors. Rapid economic growth, globalization, technological upgradation, 
ever-increasing human needs and wants and increasing purchasing power of 
people are some of the factors which have made marketing as a central activity 
for every business.  
A business organization faces countless marketing challenges that affect the 
success or failure of strategy implementation. Some examples of marketing 
decisions that may require special attention are as follows: 
1. The amount and the extent of advertising to be done. Whether to use heavy 
or light advertising. What should be the amount of advertising in print 
media, television or internet? 
2. Decisions regarding distribution network to be used. Whether to use 
exclusive dealerships or multiple channels of distribution. 
3. Whether to be a price leader or a price follower? 
4. Whether to offer a complete or limited warranty? 
5. Whether to limit or enhance the share of business done with a single or a 
few customers? 
Page 5


 
LEARNING OUTCOMES 
 
FUNCTIONAL LEVEL
STRATEGIES 
After studying this chapter, you will be able to - 
? Identify the various functional areas of business for strategy 
formulation. 
? Analyse the elements of marketing, financial, production, R 
& D and human resource strategies. 
? Explain the strategic importance of supply chain 
management. 
? Highlight the strategic role of the various functional 
strategies. 
Most of the time, strategists should not be formulating strategy at all; 
they should be getting on with implementing strategies they already 
have.
Henry Mintzberg
CHAPTER 
6 
 
 
STRATEGIC MANAGEMENT 
6.2 
 
 
 6.1 INTRODUCTION 
Once higher level corporate and business strategies have been developed, 
management  must formulate and implement strategy for each of the functional 
areas of business. Strategy of one functional area cannot be looked at in isolation. 
Different functional areas of the business are interwoven together and how a 
functional strategy is synergised with other functional strategies determines its 
effectiveness. 
Functional strategies are designed to help in the implementation of corporate 
and business unit level strategies. For effective implementation, the strategists 
have to provide direction to the functional managers regarding the plans and 
policies to be adopted. In fact, the effectiveness of strategic management 
depends critically on the manner in which strategies are implemented. Functional 
strategies provide details to business strategy and govern as to how key activities 
of the business are to be managed.  
Functional
Strategy
Marketing 
Strategy
Financial
Strategy
Production 
Strategy
Logistics
Strategy
Research and 
Development 
Strategy
Human 
Resource
Strategy
CHAPTER OVERVIEW 
 
 
 
6.3 
FUNCTIONAL LEVEL STRATEGIES 
Functional strategies play two important roles. Firstly, they provide support to the 
overall business strategy. Secondly, they spell out as to how functional managers 
will work so as to ensure better performance in their respective functional areas. 
Strategies in functional areas including marketing, financial, production, R & D 
and human resource management are based on the functional capabilities of an 
organisation. For each functional area, first the major sub areas are identified and 
then for each of these sub areas, content of functional strategies, important 
factors, and their importance in the process of strategy implementation are 
identified. 
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 framework 
of corporate level strategies and guidelines therein that are set at higher levels of 
the organization. Operational plans at the SBU level tell the functional managers 
what has to be done while policies state how the plans are to be implemented. 
Need for Functional Strategies: 
The reasons why functional strategies are needed can be enumerated as follows:  
? Functional strategies lay down clearly what is to be done at the functional 
level. They provide a sense of direction to the functional staff. 
? They are aimed at facilitating the implementation of corporate strategies 
and the business strategies formulation at the business level.  
? They act as basis for controlling activities in the different functional areas of 
business. 
? They help in bringing harmony and coordination as they are formulated to 
achieve major strategies.  
? These strategies help the functional managers in handling similar situations 
occurring in different functional areas in a consistent manner. 
Thus, top level strategies need to be segregated into viable functional plans and 
policies that are compatible with each other. In this way, strategies can be 
implemented by the functional managers. Environmental factors relevant to each 
functional and the corporate strategies influence the formulation of functional 
strategies.  
 
 
STRATEGIC MANAGEMENT 
6.4 
 6.2 MARKETING STRATEGY 
Marketing is a social and managerial process by which individuals and groups obtain 
what they need and want through creating, offering and exchanging products of value 
with others.          Philip Kotler and Gary Armstrom
Marketing is an activity performed by all business organizations. It is an activity 
that creates and sustains exchange relationships among those who are willing and 
able to buy and sell products, services, satisfaction and even ideas. In the present 
day business, marketing encompasses all the activities related to identifying the 
needs of customers and taking such actions to satisfy them in return of some 
consideration. In marketing it is more important to do what is strategically right 
than what is immediately profitable.  
The term marketing constitutes different processes, functions, exchanges and 
activities that create perceived value by satisfying needs of individuals. Marketing 
induces or helps in moving people closer to making a decision to purchase and 
facilitate a sale.  
Marketing in recent decades has gained a lot of importance because of a number 
of factors. Rapid economic growth, globalization, technological upgradation, 
ever-increasing human needs and wants and increasing purchasing power of 
people are some of the factors which have made marketing as a central activity 
for every business.  
A business organization faces countless marketing challenges that affect the 
success or failure of strategy implementation. Some examples of marketing 
decisions that may require special attention are as follows: 
1. The amount and the extent of advertising to be done. Whether to use heavy 
or light advertising. What should be the amount of advertising in print 
media, television or internet? 
2. Decisions regarding distribution network to be used. Whether to use 
exclusive dealerships or multiple channels of distribution. 
3. Whether to be a price leader or a price follower? 
4. Whether to offer a complete or limited warranty? 
5. Whether to limit or enhance the share of business done with a single or a 
few customers? 
6.5 
FUNCTIONAL LEVEL STRATEGIES 
6. Whether to reward sales people based on straight salary, straight 
commission, or on a combination of salary and commission? 
6.2.1 Marketing 
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. 
Once the corporate strategy has defined the company’s overall mission and 
objectives, marketing plays a role in carrying out these objectives by undertaking 
the following:
? Delivering Value to Customers: Marketing alone cannot produce superior 
value for the customers. It needs to work in coordination with other 
departments to accomplish this. Marketing acts as part of the organizational 
chain of activities.  Marketers are challenged to find ways to get all the 
departments to think with focus on customer. In its search for competitive 
advantage, the firm needs to look beyond its own chain of activities and 
into the chains of its suppliers, distributors, and ultimately customers. This 
“partnering” will produce a value delivery network. 
Figure 6.1: Value Delivery Network
? Connecting with customers: To succeed in today’s competitive marketplace, 
companies must be customer centric. They must win customers from competitors 
and keep them by delivering greater value. Since companies cannot satisfy all 
customers in a given market, they must divide up the total market (market 
segmentation), choose the best segments (marketing target), and design 
strategies for profitably serving chosen segments better than the competitors 
(market positioning).