Based on the content from **CH8.
pdf**, this chapter focuses on **Functional
Strategy and Strategic Choice**. It explores how various functional areas
within an organization contribute to achieving strategic goals.
Below is a well-organized list of **functional strategies** discussed in
Chapter 8, along with their key points:
---
## 🧩 Types of Functional Strategies (Arranged by Department)
### 1. **Marketing Strategy**
- Focuses on pricing, selling, and distributing products.
- **Market Development Strategy**:
- Captures larger market share.
- Targets market saturation or penetration.
- Develops new uses or markets for current products.
- **Product Development Strategy**:
- Develops new products for existing or new markets.
- **Line Extension**: Using a successful brand name for other products.
- **Push Strategy**: Promotions to gain shelf space.
- **Pull Strategy**: Advertising to pull products through distribution channels.
- **Pricing Strategies**:
- **Skim Pricing**: High price to capture early profits.
- **Penetration Pricing**: Low price to gain fast market share.
---
### 2. **Financial Strategy**
- Evaluates financial implications of strategic options.
- Aims to identify the best financial course of action.
- Includes management of:
- Dividends
- Stock prices
- Sales of company patents
- Tools/Concepts:
- **Leveraged Buyout (LBO)**: Acquisition financed largely by debt.
- **Reverse Stock Split**: Reduces number of shares while maintaining total
value.
---
### 3. **Research and Development (R&D) Strategy**
- Focuses on product and process innovation.
- **Types of Innovation Approaches**:
- **Technological Leader**: Pioneers new innovations.
- **Technological Follower**: Imitates competitors' products.
- **Open Innovation**: Uses external partnerships for innovation (e.g.,
corporate labs, universities).
---
### 4. **Operations Strategy**
- Determines how and where products/services are manufactured.
- Considers:
- Vertical integration
- Resource deployment
- Supplier relationships
- Manufacturing Types:
- Job shops
- Connected line batch flow
- Flexible manufacturing systems
- Dedicated transfer lines
- Trends:
- Mass production systems
- Continuous improvement
- Modular manufacturing
- **Mass Customization**: Supports competitive strategy through tailored
offerings.
---
### 5. **Purchasing Strategy**
- Involves obtaining raw materials and supplies.
- Options:
- **Sole Suppliers** (e.g., based on quality control like Deming’s approach)
- **Just-in-Time (JIT)** Inventory
- **Parallel Sourcing**: Multiple suppliers for risk mitigation
---
### 6. **Logistics Strategy**
- Manages the flow of products in and out of production.
- Trends:
- Centralization of logistics operations
- Outsourcing logistics
- Use of internet-based tracking and coordination tools
---
### 7. **Human Resource (HR) Strategy**
- Aligns staffing, training, and motivation with organizational goals.
- Trends:
- Self-managed teams
- 360-degree performance appraisal
- Managing a diverse workforce
---
### 8. **Information Technology (IT) Strategy**
- Leverages technology for competitive advantage.
- Trends:
- **"Follow the Sun" Management**: Around-the-clock tech support globally.
- Internet, Extranet, and Intranet usage for communication and
collaboration
---
### 9. **Outsourcing & Offshoring Strategy**
- **Outsourcing**: Purchasing services/products externally that were
previously internal.
- **Offshoring**: Outsourcing to another country (independent provider or
wholly-owned subsidiary).
- **Disadvantages**:
- Customer complaints
- Hidden costs
- Lack of skill development
- Poor quality
- Increased transportation cost
- **Common Errors**:
- Outsourcing core competencies
- Selecting wrong vendors
- Poor contracts
- Lack of control or exit strategy
---
## 🎯 Strategic Choice Process
This part of the chapter discusses how organizations evaluate and select
among strategic alternatives.
### Key Concepts:
- **Strategic Choice**: The evaluation and selection of the best strategy.
- **Decision-Making Methods**:
1. **Consensus**: Agreement among stakeholders.
2. **Devil’s Advocate**: Assign someone to challenge the proposal.
3. **Dialectical Inquiry**: Compare opposing views.
### Criteria for Evaluating Alternatives:
- Mutual exclusivity
- Success potential
- Completeness
- Internal consistency
---
## 📊 Financial Forecasting & Scenario Planning
- **Pro Forma Financial Statements**:
- Forecast impact of alternative strategies.
- Steps:
1. Use industry scenarios to set assumptions.
2. Analyze historical common-size statements.
3. Build detailed pro forma statements for each strategy.
- **Risk Evaluation Tools**:
- **Net Present Value (NPV)**: Measures profitability of projects.
- **Real Options Approach**: Used in high uncertainty environments.
---
## 👥 Stakeholder Consideration
- Questions to assess stakeholder impact:
1. How will stakeholders be affected?
2. What do they want?
3. What might they do if dissatisfied?
4. Probability of them taking action?
---
## Corporate Culture Alignment
- Four options when strategy and culture clash:
1. Ignore the culture.
2. Manage around the culture.
3. Change culture to fit strategy.
4. Change strategy to fit culture.
CH8
Based on the content of **CH8.pdf**, this chapter is titled **"Functional
Strategy and Strategic Choice"** in the book *Strategic Management &
Business Policy, 12th Edition* by Thomas L. Wheelen and J. David Hunger.
---
## 🔍 Chapter Summary: Functional Strategy and Strategic Choice (Chapter
8)
This chapter discusses how functional strategies support corporate and
business-level strategies and explores the process of strategic choice —
evaluating and selecting among alternative strategies.
---
## 📌 Key Importance of This Chapter:
### ✅ 1. **Understanding Functional Strategies**
Functional strategies are how different departments (like marketing, finance,
HR, operations, R&D) contribute to achieving broader organizational goals.
They help **maximize resource productivity** and align daily operations with
long-term objectives.
- **Marketing Strategy**: Involves pricing, distribution, and promotion.
- **Financial Strategy**: Guides investment, dividends, and capital structure
decisions.
- **R&D Strategy**: Focuses on innovation and staying competitive through
new products/processes.
- **Operations Strategy**: Determines how and where products/services are
made.
- **Human Resource Strategy**: Ensures that staffing, training, and
motivation align with strategy.
- **IT Strategy**: Leverages technology for competitive advantage.
- **Logistics & Purchasing Strategies**: Ensure smooth supply chain
operations.
> **Importance**: Helps students understand how each department
contributes strategically to the organization's success.
---
### ✅ 2. **Exploring Strategic Choices**
The chapter explains how companies evaluate various strategic options
before making a final decision.
Key concepts:
- **Strategic Choice Process**: Includes consensus, devil’s advocate,
dialectical inquiry.
- **Criteria for Evaluating Alternatives**:
- Mutual exclusivity
- Success potential
- Completeness
- Internal consistency
> **Importance**: Teaches decision-making frameworks for choosing the
best strategy under uncertainty or risk.
---
### ✅ 3. **Pricing Strategies: Skim vs. Penetration**
- **Skim Pricing**: High initial price to capture early profits.
- **Penetration Pricing**: Low price to quickly gain market share.
> **Importance**: Students learn how pricing decisions affect long-term
profitability and market position.
---
### ✅ 4. **Outsourcing and Offshoring Decisions**
- Discusses when to outsource or offshore functions.
- Highlights risks like loss of control, hidden costs, and dependency on
vendors.
> **Importance**: Prepares managers to make informed decisions about
internal vs. external sourcing in a globalized economy.
---
### ✅ 5. **Corporate Culture and Strategy Fit**
- Four options for handling culture-strategy alignment:
1. Ignore the culture.
2. Manage around the culture.
3. Change the culture to fit strategy.
4. Change the strategy to fit the culture.
> **Importance**: Emphasizes the role of organizational culture in successful
strategy implementation.
---
### ✅ 6. **Scenario Planning and Financial Forecasting**
- Explains how to use **pro forma financial statements** to assess the
impact of different strategies.
- Tools like **Net Present Value (NPV)** and **Real Options Approach** help
evaluate risk and return.
> **Importance**: Teaches financial evaluation techniques critical for
strategic planning and investment decisions.
---
### ✅ 7. **Stakeholder Consideration**
- Outlines how to assess the importance of stakeholder concerns:
- How will they be affected?
- What do they want?
- What actions might they take if dissatisfied?
> **Importance**: Encourages ethical and sustainable decision-making by
considering all stakeholders.
---
## ✅ Why This Chapter Matters for Business Students:
| Area | Why It's Important |
|------|---------------------|
| **Functional Alignment** | Shows how every department must work
together toward common strategic goals. |
| **Decision-Making Tools** | Introduces frameworks for evaluating and
selecting strategies. |
| **Global Trends** | Covers outsourcing, offshoring, and cultural
considerations in international business. |
| **Risk Management** | Explains how to assess financial and operational
risks in strategic choices. |
| **Cultural Awareness** | Highlights the impact of corporate culture on
strategic success. |
