Strategic

Management
Functional and Business level Strategy

Submitted by:
Utkarsh Bajpai
DFMRM 3A
ROLL NO. 51
Strategy

• The word “Strategy” was attested as a word in 1810 which

was first used in Germany in 1777 by Leo as “Strategie”,
which in turn is derived from a Greek word “Strategos”
(General ship).

• By strategy, we mean a cohesive response to a challenge.

• The most important element of a strategy is a coherent

viewpoint about the forces at work, not a plan.

Strategy = Adapt + Evolve

• Successful strategy is not about a grand plan.

• Rather, it is an integrated process that prepares the

organization for a range of futures by creating what we can
call as a state of “dynamic resilience.”

• This involves making smaller bets on a range of

initiatives, rather than betting the firm on just one outcome
and, as part of the strategic process, growing the firm’s
resources and skills to be able to capitalize on
opportunities that emerge and ward off threats.

• In other words, to adapt and evolve.

Different levels of strategy

Functional strategy:

• Fu
nctional strategy is the
approach a functional area
 takes to achieve corporate and business unit objectives
and strategies by maximizing resource productivity.

• It is concerned with developing and nurturing a distinctive

competence to provide a company or business unit with a
competitive advantage.

Various types of functional strategies are:

1) Marketing strategy

2) Financial strategy

3) Research & development strategy

4) Operations strategy

5) Purchasing strategy

6) Logistics strategy

7) Human resources strategy

8) Information technology strategy

1) Marketing Strategy:

Basic market and product strategy:

It decides who our primary customer is and what kind of product

we intend to offer. Thus we have four strategies:

• Market Penetration: A market penetration strategy

seeks to increase market share of the current product or
services in the existing market. It can be implemented by
offering sales, Increasing sales force, increase distribution
and promotion of products, more expenditure in marketing
and advertising activities will results in increasing sales.

Examples: Tata DoCoMo offering 1 paise/second

pulse calls charges to penetrate into the market.
 • Market development: A market development strategy
involves selling present products or services in new
markets. Managers take actions like targeting promotions,
opening sales offices and creating alliances to
operationalize a market development strategy.

Examples: Expansion of Bajaj motors into Indonesia,

but there they have launched there premium hot
selling products like Pulsar’s with lots of promotion.

• Product development: Developing new products or

modifying existing products so they appear new, and
offering those products to current or new markets is the
definition of product development strategy.

Examples: Launching of Reliance GSM into the

market after the launch of Reliance CDMA in order
to capture bigger market.

• Diversification innovation: Product diversification

involves modifying existing products in order to expand
the market potential of a product. From changes in brands
to changes in a product's target market, product
diversification can obtain new clients for your product by
leveraging an existing product's reputation and
development platform to produce and sell a modified
product.
Example: Introduction of K-series engines by the
Maruti Suzuki, which are more fuel efficient, thus
capturing a wider market.

4Ps of marketing:

Product Strategy:

Price Strategy: Price planning that takes into view factors

such as a firm's overall marketing objectives, consumer
demand, product attributes, competitors' pricing, and market
and economic trends.
• Promotional pricing: It’s an approach to sell of excessive
inventory by promotion.

Example: Discount offer like buy 2 and get 1 free.

• Skimming pricing: Approach under which a producer

sets a high price for a new high-end product or a uniquely
differentiated technical product. Its objective is to 'skim'
maximum revenue from the market before substitutes
products appear.

Example: In case of launch of new technology or

perfume.

• Psychological pricing: It’s an approach in which the

prices are set to a level that is perceived attractive by the
customer.

Example: - Prices which are ending at 9 or 5 of

product.

• Penetrating pricing: Pricing method of new product

introduction to market that consists of pricing low and
promoting heavily in order to gain a large.

Example: Market of mobiles

• Competitive pricing: It’s a marketing oriented strategy

where by the prices are set on the basis of prices set by
the competitors.

Example: Prices of beverages such as Pepsi and

Coca-Cola

• Cost plus pricing: The cost-plus price is computed by

dividing the fixed costs of a product by the estimated
number of units to be sold and then adding the variable
cost per unit, or by adding the total variable costs and
fixed costs and then dividing by the total number of units
to be produced.
 Example: If a business sells a microwave that has a
variable cost of Rs.1500, a fixed cost allocation of
Rs.5, and a desired mark-up of 30%, the price of the
microwave using this method would be (1500 +
50)*(1+0.30), or Rs.2015.

• Dynamic pricing: It refers to offering goods at a price

that changes according to the level of demand, the type of
customer, or the state of the weather.

Example: Price of petrol

• Premium pricing: Practice in which a product is sold at a

price higher than that of competing brands to give it snob
appeal through an aura of 'exclusivity.'

Example: Prices of luxury product.

Promotional Strategy: We can define promotional strategy as

choosing a target market and formulating the most appropriate
promotion mix to influence it.

An organisations promotional strategy can consist of:

• Advertising

• Public relations

• Sales promotion

• Personal selling

• Direct Mail

Push Strategy: A push promotional strategy involves taking

the product directly to the customer via whatever means to
ensure the customer is aware of your brand at the point of
purchase.

Example: Direct selling to customers in showrooms or

face to face
Pull Strategy: A pull strategy involves motivating customers to
seek out your brand in an active process.

Example: Advertising and mass media promotion

Place available/ distribution strategy: This refers to how an

organisation will distribute the product or service they are
offering to the end user. The organisation must distribute the
product to the user at the right place at the right time. Efficient
and effective distribution is important if the organisation is to
meet its overall marketing objectives.

There are three broad options –

• Intensive Distribution: Used commonly to distribute low

priced or impulse purchase products

Examples: Chocolates, soft drinks.

• Selective Distribution: Involves limiting distribution to a

single outlet. The product is usually highly priced, and
requires the intermediary to place much detail in its sell.

Example: Sale of vehicles through exclusive dealers.

• Exclusive distribution: A small number of retail outlets

are chosen to distribute the product. Example: Selective
distribution is common with products such as
computers, televisions household appliances, where
consumers are willing to shop around and where
manufacturers want a large geographical spread.

2) Financial Strategy:

Financial strategy can be defined as all those practices which a

firm adopts to pursue its financial objectives. Financial aspect of
business activist deals with raising, administering and
distribution of funds by the organisation for the purpose of
business operations.
It includes:

Capital acquisitions: It includes Debt Leverage, Stock Sales, &

Gains from Operations.

• Equity financing is preferred for related diversification.

• Debt financing is preferred for unrelated diversification.

• Leveraged buyouts (LBOs) make the acquired firm pay off

the debt.

Resource Allocations: It includes Dividends, Stock Price, &

Reinvestment.

• Reinvest earnings in fast-growing companies.

• Keeping the stockholders contented with consistent

dividends.

• Use of stock splits (or reverses) to maintain high stock

prices.

• Tracking stock keeps interest in company, but doesn’t

allow takeover.

Sources of Fund: There are various sources of funds, such as:

• Long terms sources:

 Shares Capitals

 Equity Shares

 Preference Shares

 Borrowing

 Debentures

 Retained Earning

• Short terms sources:

  Loans

 Public deposits

 Trade credits

 Customers

 Leased assets

Management of funds: Management of funds is important

part of financial strategy. It plays a pivotal role in strategy
implementation as it aims at the conservation and optimum
utilisation of funds.

Example: In Tata, Financial strategy plays a very vital

role in cost-effectiveness of the company.

3) Research and development Strategy:

Research and development strategy can be defined as all those

practices which a firm adopts to pursue its innovation and
product development objectives. It deals with raising,
administering and distribution of funds by the organisation for
the purpose of research.

It includes following strategies:

• Product Innovation: It can be defined as the production

of a totally new product, rather than a new production
process.

Example: Introduction of I Pad by Apple.

• Process Improvement: It can be defined as the new

production process rather than new product.

Example: Tata motors improved their shifting

technique in their trucks by bringing a change in
their process.
Now here the company has two choices,
either be a TECHNOLOGICAL LEADER (Example: Apple IPod) -
Here one pioneers an INNOVATION.
Or be a TECHNOLOGICAL FOLLOWER (Example: Sony Mp3
player) - Here one imitates the products of competitors

Acquisition of Technology

It refers to whether the technology is internally

acquired or it has been outsourced.

 Technology “Scouts”: It refers to those companies

which have a systematic approach in which they assign
part of their staff or employ external consultants to gather
information in the field of science and technology and
through which they facilitate or execute technology
sourcing .

 Strategic Technology Alliances: Like Tata

telecommunications and DoCoMo (Japan) has
launched 3G service in India.

 Acquire minority stake in promising high-tech

ventures:

4) Operations Strategy:

Operations strategy is the total pattern of decisions which shape

the long-term capabilities of any type of operations and their
contribution to the overall strategy, through the reconciliation of
market requirements with operations resources.

Manufacturing Location

 It refers to whether the products are being produced

internally within the company or are being outsourced
from outside.
  Also, It refers to what are the locations of the facility, it’s
within the country or situated internationally.

System Layout

 It refers to what type of product is being produced by

which systematic manufacturing process.

 It also tells whether they possess a small batch production

or possess a high scale mass production.

 Job shop/small batch production fits well with a

differentiation strategy.

 Continuous production / dedicated transfer lines help

achieve cost leadership

 It also tells us what type of technology they are

possessing, whether they are labour intensive or
manufactured through machines.

 Modular Manufacturing and just-in-time delivery of sub-

assemblies helps in better and efficient production of
goods.

 Continuous improvement systems lower costs and increase

quality.

Example: Bajaj auto continuously concentrate on their

operations strategies in order to produce economical
bikes.

5) Purchasing Strategy:

Purchasing Strategy can be defined as long-range plans made

for ensuring timely supply of goods and/or services those are
critical to a firm's ability to meet its core business objectives.

Sourcing Components and Supplies:

It refers to from where the raw material and other
products are being outsourced and supplied.

Outsourcing (our firm buys everything)

 Buying on the Open Market (Spot) (prices fluctuate)

 Long-Term Contracts with Multiple Suppliers (low bid)

 Sole Sourcing (only one supplier) improves quality

 Parallel Sourcing (two suppliers) provides protection

Backward Integration (our firm has an ownership stake

in the suppliers we use)

 Quasi-integration (minority ownership position in a

supplier)

 Tapered (produce some of what we need, but not all)

 Full (produce all of our own needs)

6) Logistics Strategy:

It refers to all those activities involved in transportation

of goods within the supply chain.

Type of Materials Transported (Bulky or Compact)

 Raw Materials, Supplies, & Components

 Finished Goods

Best Mode of Transportation

 AIR

 RAIL

 TRUCK
  BARGE

Contract with Others

 Use Multiple Shippers or Just One (UPS)

 Consider batch deliveries or Just-in-time arrangements

Ownership in Distribution Chain

• Quasi-integration (minority ownership position in a

supplier)

• Tapered (produce some of what we need, but not all)

• Full (produce all of our own needs)

7) Human resource strategy:

Human resource strategy is designed to develop the skills,

attitudes and behaviours among staff that will help the
organization meet its goals. Human resource strategy consists
of principles for managing the workforce through HR policies
and practices. It covers the various areas of human resources
functions such as recruitment, compensation, performance
management, reward and recognition, employee relations and
training.

It includes:

Talent Acquisition

 Recruit from Outside v. Internal Development

 Require experienced, highly-skilled workers v. “we will

train you”

 Offer “top dollar” wages & benefits v. mentoring and a

career

Work Arrangements
  Individual Jobs v. Team Positions

 Narrowly-defined jobs v. Positions with discretion and

autonomy

 On-premises Work v. Telecommuting Options

Motivation & Appraisal

 Extrinsic v. Intrinsic Reward Systems

 Assessment for development v. assessment for rewards

 Incentives for ideas & originality v. incentives for

conformity

Thus, we have two types of strategy i.e. Whether a company

should, Hire large no of LOW SKILLED employees (low pay),
perform repetitive jobs and quit after a short time
(McDonald’s restaurant strategy) or, Hire SKILLED
EMPLOYEES who receive high pay and are trained to
participate in self-managing work teams. Research indicates
that the use of work teams leads to increased quality and
productivity as well as higher employee satisfaction and
commitment.

Sometimes companies also use PART-TIME employees- Many

North American and European countries are using part time
employees.

8) Information System strategies:

Information is basis for understanding the firm. It is one of the

most important factors, differentiating successful from
unsuccessful firms. It is related to design and management of
flow of information within and outsides into organisation.

It means planning how organisation collects, uses, and

disseminates information ultimately will affect its ability to
develop a sustainable competitive advantage.

Example: L&T (Larsen &Toubro)

Complex and diversified organization

62 different operations

• Engineering and construction

• Electricals and electronics

• Machinery and industrial products

• Financial services

Worker Productivity & Connectivity

 Employees can be networked together across the globe.

 Instant translation software for global firms.

 “Follow the Sun Management”…pass projects on to the

next team.

Sales & Inventory Management

 Internet sales and development of customer databases

 Instant sales reports allow immediate inventory reorders

Shipping & Tracking Goods

 FEDEX Power Ship software…stores addresses, prints

labels, etc.

 Tracking the progress of package shipment…FEDEX & UPS

E.g.:- Walt- Mart required its top 100 suppliers to use RFID
by 2005
Business level strategy:

Business-level strategy is an integrated and coordinated set of

commitments and actions the firm uses to gain a competitive
advantage by exploiting core competencies in specific product
markets.

In selecting a business-level strategy, the firm determines

 • who it will serve

• what needs those target customers have that it will

satisfy

• how those needs will be satisfied

Thus, firm’s customer plays a central role in business strategy

determination.

Thus, We have various types of strategies:

Strategies based on market dominance - In this scheme,

firms are classified based on their market share or dominance of
an industry. Typically there are four types of market dominance
strategies:

 Leader: They may be the pioneer, particularly in new and

growing markets. They has dominant market share. They
are the likely target of challengers’ strategic attacks.

Example: Nokia

 Challenger: A market challenger is a firm competing

aggressively in order to extend market share.

Example: Samsung

 Follower: These are typically found in oligopolistic

industries. They try to compete on dimensions other than
price, product, service, promotion, distribution.

Example: LG, Motorola

 Nicher: These operate on high profit margins vs. high

volume. They compete in well-defined market segments
(niches). Successful nichers usually have a large share of
their niche.

Example: Apple, Ferrari etc.

Innovation strategies - This deals with the firm's rate of the

new product development and business model innovation. It
asks whether the company is on the cutting edge of technology
and business innovation. There are three types:

 Pioneers: These are the first ones to enter into the market
with new product.

Example: Videocon LED TV

 Close followers: These are the second ones in the market

to come into the market with the product with similar
features.

Example: Sony LED TV

 Late followers: followers other than second followers are

known as late followers.

Example: Samsung and other TV manufacturers

Business Tactics: It can be defined as a means by which a

strategy is carried out; planned and ad hoc activities meant to
deal with the demands of the moment, and to move from one
milestone to other in pursuit of the overall goals.

Pre-emption:

• Pioneering: It means being the first in the market to

introduce a product. They primarily focus on new product
research and development.

• Attack yourself: It refers to self-destruction which also

leads to damage to the competitors.

• Intimidation: It’s an Unlawful act of intentionally coercing

or frightening someone to do (or to not do) something
against his or her will, such as forcing someone to give
money by threat of violence. Commission of a crime under
intimidation may avail an accused the defence of acting
under duress.

Attack:
• Frontal Assault: It’s a tactic where the challenger attacks
the competitor's strengths by matching the product, price,
advertising, and distribution

• Flanking maneuevr: It’s a tactic where the challenger

attacks the leader's weakness by filling gaps not filled by
the competitor and by developing strong products where
the competitive products are the weakest.

• Guerrilla warfare: Competitive marketing strategy

typically followed by smaller companies challenging larger
ones for a greater share of the consumer market. The
market challenger will make small periodic attacks against
the larger competitor, hoping to establish a permanent
foothold in the market. Guerrilla warfare tactics include
selective price cuts, executive raids on key personnel,
intense bursts of promotional activities, or various legal
actions.

• Bypass attack: It is not really a direct attack but one

where the challenger bypasses the competitor and targets
an easier market, hoping that demand for its product will
overtake the competitor's product.

• Encirclement: It’s a tactic where the challenger attacks

from all directions.
Deterrence:

• Raising Structural barriers: Structural barriers can be

led through:

• offering full line of products

• signing exclusive distribution agreements

• raising buyer switching costs by offering lower

cost for training

• raising cost for competition to gain trial users by

decreasing your cost

• increasing the scale of economies

• patents and licensing

• limiting access to facilities

• signing exclusive contracts with suppliers and

buying key locations
 • avoiding suppliers who deal with competition

• Encouraging the government to increase

barriers.

• Increase expected retaliation by making a big

deal of a small thing.

• Lower the inducement for attack by keeping

pricing low and constantly decreasing costs to keep
profit high.

• Expected retaliation: It refers to blocking the way for the

new entrants to enter into the market easily.

• Position defense - This involves the defense of a fortified

position. This tends to be a weak defense because you
become a “sitting duck”. It can lead to a siege situation in
which time is on the side of the attacker, that is, as time
goes by the defender gets weaker, while the attacker gets
stronger. In a business context, this involves setting up
fortifications such as barriers to market entry around a
product, brand, product line, market, or market segment.
This could include increasing brand equity, customer
satisfaction, customer loyalty, or repeat purchase rate. It
could also include exclusive distribution contracts, patent
protection, market monopoly, or government protected
monopoly status. It is best used in homogeneous markets
where the defender has dominant market position and
potential attackers have very limited resources.

• Mobile defense - This involves constantly shifting

resources and developing new strategies and tactics. A
mobile defense is intended to create a moving target that
is hard to successfully attack, while simultaneously,
equipping the defender with a flexible response
mechanism should an attack occur. In business this would
entail introducing new products, introducing replacement
products, modifying existing products, changing market
segments, changing target markets, repositioning
 products, or changing promotional focus. This defence
requires a very flexible organization with strong marketing,
entrepreneurial, product development, and marketing
research skills.

• Flanking Position - This involves the re-deployment of

your resources to deter a flanking attack. You strengthen
your flank if you think it is vulnerable. The disadvantage of
this defense is that it can distract you from your primary
objective and siphon resources away from where they are
needed most. In business terms, this involves the
introduction of new products, product lines, or brands, the
defensive re-positioning of existing products, or additional
promotional activity in a market niche. It requires market
segmentation and/or product differentiation. You protect
against potential loss of market share in a segment by
strengthening your competitive position there.

Response:

• Counter attack: It’s where the market leader studies the

competitor's offense to find a gap and make
counterattacks at this weak point.
• Fast followers: Sometimes the first mover is not able to
capitalize on its advantage, leaving the opportunity for
another firm to gain second-mover advantage. These
second-movers are also known as “Fast followers”.

• Retrenchment: Retrenchment revolves around cutting

sales. Retrenchment is a corporate-level strategy that
seeks to reduce the size or diversity of an organization's
operations. Retrenchment is also a reduction of
expenditures in order to become financially stable.
Retrenchment is a pullback or a withdrawal from offering
some current products or serving some markets. In a
military situation a retrenchment provides a second line of
defence. Retrenchment is often a strategy employed prior
to or as part of a Turnaround strategy.

There are five activities that characterize retrenchment:

 Captive Company: Essentially, a captive company's

destiny is tied to a larger company. For some companies,
the only way to stay viable is to act as an exclusive
supplier to a giant company. A company may also be taken
captive if their competitive position is irreparably weak.

 Turnaround. If your company is steadily losing profit or

market share, a turnaround strategy may be needed.
There are two forms of turnarounds: First, one may choose
contractions (cutting labor costs, PP&E and Marketing).
Second, they may decide to consolidate

 Bankruptcy: This may also be a viable legal protective

strategy. Bankruptcy without a customer base is truly a
bad place. However, if one declares bankruptcy with loyal
customers, there is at least a possibility of a turnaround.

 Divestment: This is a form of retrenchment strategy used

by businesses when they downsize the scope of their
business activities. Divestment usually involves eliminating
a portion of a business. Firms may elect to sell, close, or
spin-off a strategic business unit, major operating division,
 or product line. This move often is the final decision to
eliminate unrelated, unprofitable, or unmanageable
operations.

 Liquidation: This is very simple. Take the book value of

assets, subtract depreciation and sell the business. This
may be hard for some companies to do because there may
be untapped potential in the assets.

• Withdrawal: A strategic withdrawal from the

marketplace, giving up weaker positions and concentrating
resources on stronger ones, or serving fewer markets but
serving them much better.

• Leapfrog strategy -This strategy involves bypassing the

enemy’s forces altogether. In the business arena, this
involves either developing new technologies, or creating
new business models. This is a revolutionary strategy that
re-writes the rules of the game. The introduction of
compact disc technology bypassed the established
magnetic tape based defenders. The attackers won the
war without a single costly battle. This strategy is very
effective when it can be realized.

Porter’s Generic Strategies:

Cost leadership Strategy: An integrated set of actions

designed to produce or deliver goods or services at the lowest
cost, relative to competitors with features that are acceptable to
customers

• relatively standardized products

• features acceptable to many customers

• lowest competitive price

Some conditions that tend to make this strategy an attractive
choice are:

• The industry's product is much the same from seller to

seller

• The marketplace is dominated by price competition, with

highly price-sensitive buyers

• There are few ways to achieve product differentiation that

have much value to buyers

• Most buyers use product in same ways -- common user

requirements

• Switching costs for buyers are low

• Buyers are large and have significant bargaining power

Cost saving actions required by this strategy:

• Building efficient scale facilities

• Tightly controlling production costs and overhead

• Minimizing costs of sales, R&D and service

• Building efficient manufacturing facilities

• Monitoring costs of activities provided by outsiders

• Simplifying production processes

Example: Big bazaar is an example of Cost leadership

strategy, as they sell relatively cheap products due to
the advantage of bulk quantities at wholesale prices.

Differentiation strategy: An integrated set of actions

designed by a firm to produce or deliver goods or services (at
an acceptable cost) that customers perceive as being different
in ways that are important to them:

• price for product can exceed what the firm’s target

customers are willing to pay
 • Non-standardized products

• customers value differentiated features more than they

value low cost

Its characteristics:

• Value provided by unique features and value

characteristics

• Command premium price

• High customer service

• Superior quality

• Prestige or exclusivity

• Rapid innovation

Differentiation actions required by this strategy:

• developing new systems and processes

• shaping perceptions through advertising

• quality focus

• capability in R&D

• maximize human resource contributions through low

turnover and high motivation

Example: McDonald’s is an example of differentiation

strategy.

Focused cost leadership strategy: A market niche strategy,

concentrating on a narrow customer segment and competing
with lowest prices, which, again, requires having lower cost
structure than competitors.

Some conditions that tend to favour focus (either price or

differentiation focus) are:
 • The business is new and/or has modest resources

• The company lacks the capability to go after a wider part

of the total market

• Buyers' needs or uses of the item are diverse; there are

many different niches and segments in the industry

• Buyer segments differ widely in size, growth rate,

profitability, and intensity in the five competitive forces,
making some segments more attractive than others

• Industry leaders don't see the niche as crucial to their own

success

• Few or no other rivals are attempting to specialize in the

same target segment

Example: Subway provides the cheapest low-calorie

sandwiches to its health cautious customers.

Example:

Focused differentiation strategy: A second market niche

strategy which is concentrating on a narrow customer segment
and competing through differentiating features.

Example: FAB India is an example of focused

differentiation strategy as it caters to a niche market by
providing product differentiation through its unique
product lines.

Integrated strategy: A firm that successfully uses an

integrated cost leadership/differentiation strategy should be in a
better position to:

• Adapt quickly to environmental changes

• Learn new skills and technologies more quickly

 • Effectively leverage its core competencies while competing
against its rivals

Benefits of Integrated Strategy

• Successful firms using this strategy have above-average

returns

• Firm offers two types of values to customers

– Some differentiated features (but less than a true

differentiated firm)

– Relatively low cost (but not as low as the cost leader’s

price)

Example: Maruti Suzuki is an example of Integrated

strategy as it provide economical cars and creates
differentiation with its quality and economical engine.