Functional Level Implementation

Functional strategies are at the heart of competitive advantage of any firm. These strategies are a great help to the implementation of integrated business strategy of the firm. They are as basis for attaining the strategic intent of the firm. Functional strategies are formed in correlation with the changing competitive environment.

Every business firm is built around certain basic functions such as production, marketing, finance, human resources, information system, operational research and development, etc. Many other functions are supporting activities which are significant for the business. Melvin J. Stanford says that for a firm to fulfill its purposes and progress towards it objectives, strategic alternatives within each of these functional areas must be developed, selected and implemented by management.

Functional strategies are the collective activities of day-to-day decisions made by respective functional department heads who are responsible in creating and adding value to the product or service. They are involved in designing product, raising finance, manufacturing the required product, delivering product to customers, and support product or service of each business within the corporate portfolio.

These activities are carried out by efficient utilization of available resources and capabilities; and integrating the activities within the functional area as, for example, coordinating among research in marketing, purchasing, inventory control, promotion, advertising and shipping in production.

Functional strategies are derived from business level strategy. Remember the three generic strategies-low cost leadership; differentiation and focus strategy. For example, take a firm pursuing low cost leadership strategy. When the strategy is implemented, all the functional areas have to be focused on low cost structure.

According to Thompson and Strickland, strategy making is not just a task for senior executives. In large enterprises, decisions about what business approaches to take and what new moves to initiate involve senior executives in the corporate office, heads of business units and product divisions, the heads of major functional areas within a business or division (manufacturing, marketing and sales, finance, human resources, and the like), plant managers, product managers, district and regional sales managers, and lower-level supervisors. In diversified enterprises, strategies are initiated at four distinct organization levels-

These are as follows:

1. Corporate Strategy

It is a strategy for the company and all of its businesses as a whole.

2. Business Strategy

It is a strategy for each separate business the company has diversified into.

3. Functional Strategy

Then there is a strategy for each specific functional unit within a business. Each business usually has a production strategy, a marketing strategy, a finance strategy, and so on.

4. Operating Strategy

And finally, this is a still narrower strategy for basic operating units — plants, sales districts and regions, and departments within functional areas.

Importance of Functional Strategy

Today, every firm faces challenges in optimizing resources such as finance, production facilities, technology, and marketing opportunities in functional areas. Functional managers need strategies to make the best of opportunities and to identify avenues for growth. They need strategic focus on their decisions in their fields.

The importance of functional strategies is pointed out under the following headings:

1. Help in Operation of Business Functions

Functional strategies provide operational help in the conduct of various functional activities. For example, a finance manager has to necessarily take decisions on funding opportunities, deploying projects, reducing capital costs, or acquiring another firm. In addition, he has to decide on strategic options to manage working capital, which may be used to decide the various aspects of receivables management, factoring, payables management, inventory strategy, and treasury management.

Similarly, to manage human resource function, a number of strategic initiatives can be deployed by a firm. Managers need strategic focus on various functions. The production and operations management function also involves a number of strategic issues.

2. Managerial Road Map

Thompson and Strickland write, “A company needs a functional strategy for every major business activity and organizational unit. Functional strategy, while narrower in scope than business strategy, adds relevant detail to the overall business game plan. It aims at establishing or strengthening specific competencies calculated to enhance the company’s market position. Like business strategy, functional strategy must support the company’s overall business strategy and competitive approach. A related role is to create a managerial road map for achieving the functional area’s objectives and mission.”

3. Help in Implementation of Grand Strategy

Pearce and Robinson state that “functional strategies must be developed in the key areas of marketing, finance, production, R&D, and personnel. Functional strategies help in implementation of grand strategy by organizing and activating specific subunits of the company to pursue the business strategy in daily activities.”

4. Decisional Guides to Action

Functional strategies guide and translate thought into action designed to accomplish specific annual objectives. Thus, functional strategies may be regarded as decisional guides to action that make the strategies work. They clarify many conflicting issues and problems, giving specific short-term guidance to operating managers and employees.

5. Improves Effectiveness and Efficiency and Creates Super Profitability

It should be noted that functional strategies aim at improving the effectiveness of a company’s operations and thus its ability to attain superior efficiency, quality, innovation, and customer responsiveness. It is important to keep in mind the relationships of functional strategies, distinctive competencies, differentiation, low cost, value creation, and profitability.

We can note that functional-level strategies can build resources and capabilities of a firm that enhance superior efficiency, quality, innovation. These in turn, create low cost, value and superior profitability.

6. Builds Competitive Advantage

Functional strategies can improve the efficiency, reliability (quality), and consumer responsiveness of its service. Thus, they can be used to build a sustainable competitive advantage. Functional strategies can increase efficiency of activities and thereby lower their cost structure. In fact, functional strategy is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage.

Types of Functional Strategy

1. Marketing Strategy

The definition of marketing strategy can be given, as: “A marketing strategy is a practice that allows an organization to focus on the available resources and turn the opportunities into productivity to increase sales and achieve justifiable competitive lead.” Marketing strategies provide detailed information to the necessary plans to be taken, to carry out the marketing program.

By using an effective marketing plan an organization may go for capturing a large share of existing market, develop a new market for its current products, or develop new products for its existing market or even go for total diversification strategy that mean developing a new product for an entirely new market.

The marketing strategy based on building an organization that revolves around customer satisfaction helps the organization in achieving fast growth rate. It describes how the organization is going to engage customers, identify the prospects, and the competition in the market.

2. Financial Strategy

The financial strategy deals with the availability or sources, usages, and management of funds. It focuses on the alignment of financial management with the corporate and business objectives of an organization to gain strategic advantage. It emphasizes on the aspects such as – how much fund is required. When the fund is required? How the funds should be raised? In addition, by what are the means to use and manage the funds?

3. Operations Strategy

According to Slack and Lewis, operations strategy can be defined as: “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.” One must not be confused between two terms that are “operations” and “operational”.

However, the words are similar but have different meaning. ‘Operations’ refers to those parts of business which deals with producing goods and services. ‘Operational’ means short term and limited plans. For example, a marketing strategy defines the procedures and approaches to be used by an organization to position its business in the market.

4. Human Resource Management Strategy

Human resource management (HRM) strategy assists in implementing the specific function of human resource management to any organization. Human resource management strategy provides a practical framework of managing human resource in line with the organization’s corporate objectives.

It involves a four-way approach:

• Developing a strategic framework
• Generating HR mission statement
• Applying SWOT analysis
• Making HR planning decisions