Read this essay to learn about the functional strategies of a firm:- 1. Marketing 2. Finance 3. Production 4. Total Quality Management-TQM- Considerations 5. Research and Development 6. Purchasing 7. Human Resources 8. Information Systems Management.
1. Essay on Marketing:
Marketing consists of four dimensions or “four P’s” price, promotion, product/service, and place (i.e., channels of distribution). The particular generic strategy adopted by the business unit influences how these various dimensions are planned and executed. The emphasis on marketing-most notably the notion of customer orientation-continues to gain prominence and place a high level of importance on marketing strategies that support the firm and business strategies. From a competitive standpoint, marketing is arguably the most critical of the functional strategies and should be considered early in the development of the business strategy.
Pricing Strategies:
Business units that compete with the low-cost generic strategy produce basic, relatively undifferentiated outputs and often offer low, prices. Wal-Mart is known for its highly effective high- volume, low-cost strategy. Even Internet power house amazon(dot)com has sought to follow the Wal-Mart model, cutting prices whenever possible in an effort to gain economies of scale through high volume.
Motel 6 also incorporates such a strategy, offering clean and comfortable, w-priced rooms. Founded more than 40 years age Motel 6 minimizes costs by offering few services, such as restaurants or conference rooms. Its simple brand name, Motel 6, even conveys the impression of economy services. Consistent with no-frills outputs, each Motel 6 offers rooms at daily rates at or below other nearby chain motels. Promotional efforts are minimal-primarily radio spots and attempt to convey to the traveling public that Motel 6 offers satisfactory economy lodging. Motel 6 even extended this concept to Studio 6, the extended stay brand it launched in 1999.
Businesses’ that use the generic strategy of low-cost differentiation must market quality products and services that are distinguishable from the outputs of their competitors. For example, Hampton Inn offers larger rooms with better quality furnishings than Motel 6, along with amenities such as a free breakfast buffet, a swimming pool, and conference rooms. The brand name’ Hampton Inn is Intended to convey the impression of quality and value. Average to slightly above average prices are charged for Hampton Inn room, depending on the competitive situation, and promotional efforts connote a differentiated quality image.
Business units that combine the focus strategy with the differentiation or low-cost-differentiation generic strategy tend to emphasize other factors their marketing strategies. These businesses offer unique, high-quality products and services to meet the specialized needs of a relatively small market. Most bed-and-breakfast establishments offer a limited number of rooms to discriminating travelers who seek accommodations with a local, home oriented flavor.
Promotional Strategies:
Firms operating in a number of industries have been banned from advertising in the United States, although many of these regulations have been lifted recently. Medical professionals, attorneys, and pharmaceutical companies are now permitted to advertise their products and services, provided specific requirements are met. However, advertising can often backfire if consumers perceive that expenses associated with the promotion may drive up already steep fees, as could be the case for attorney services or prescription medicines.
From a marketing perspective, the Internet presently offers opportunities for integration among various media. In 2001, Proctor & Gamble began sponsoring news stories on topics such as health care, parenting, and nutrition, ending each 90-second segment with a referral to its Web site via the television station’s site. For example, a story on diaper rash might conclude with a referral to the Pampers page.
Product/Service Strategies:
A critical marketing concern also related to other functional areas is that of customer service. Developing and maintaining the quality of customer service can be more challenging than enhancing product quality because the consumer perceives service value primarily at the time the service is rendered (or not rendered). All functional areas must work together to provide the customer with product and service value. For example, an online retailer must fulfill several customer needs.
First, it must offer value to customers in their shopping. Carrying the products that customers desire at competitive prices means that the various functions must communicate with one another and cooperate closely. Next, it must make certain that its employees are able to respond to customer inquiries, either electronically or by telephone. This capability requires effective human resource management (FIRM) training as well as information systems management.
The e-tailer must also ensure that it stocks sufficient quantities of the items that it promotes a common problem for startups in the 1990s. This requires interaction among the purchasing, inventory, information systems, and marketing functions. Finally, the company must provide the clear, efficient, and secure means for customers to complete the purchase process accurately and quickly, requiring the close cooperate on of information systems and human resource management.
Product design is also critical to all firms, regardless of the strategies they employ. Although design was traditionally associate with appearance, the concept also includes such features as designing a product for easy manufacturability so that fewer parts have to be purchased or improving the product’s ability to perform its purpose.
Effective design now addresses aesthetics as well as other consumer concerns, including such factors as how a product works, how it feels in the hand, how easy it is to assemble and fix, and even what its prospects are for recycling. Gaining a competitive advantage through superior product design involves all functional areas. A well-designed product is attractive and easy to build, market, use, and maintain; it is also driven by simplicity.
The importance of service cannot be overemphasized. Southwest Airlines’ frequent fliers appreciate that company’s commitment to superior service in. a friendly, professional, but sometimes comical environment. Interestingly, surveys typically suggest that more than one third of consumers choose businesses that charge high prices but provide excellent service over companies that offer low prices but mediocre service.
Personal attention is an important way that some businesses provide superior service. Personal attention involves paying heed to details, addressing customers’ concerns, answering technical questions, and providing service after the sale. Such attention often plays an important psychological role as well because customers see how important quality is to the organization.
Place (Distribution) Strategies:
Low-cost businesses typically seek distribution channel, which meet the basic needs of the target market while minimizing costs. In contrast, differentiated businesses often select the most appropriate means of distribution regardless of cost and may even use the means of distribution as a way of differentiating the business. For example, cost leader Cici’s distributes its pizza through low-priced buffets and customer pick-up at the restaurant, whereas Domino’s has used “free” delivery-the costs of which is built into the price-as an effective means of differentiation over the years.
2. Essay on Finance:
The financial strategy’ addresses factors related to managing cash, raising capital, and making investments. Because few businesses internally generate the amount of cash necessary to grow, most resort to other means of securing financial resources. Different means of securing funds will likely be considered and prioritized depending on the corporate and business strategies selected.
Low-cost businesses pursue financial strategies that are intended to minimize their financial costs. They place a great emphasis on keeping costs within the limits of the funds they are able to generate from operations. When borrowing becomes necessary, they usually try to do so when credit costs are relatively low, even if they must defer expansion plans.
In contrast, differentiated businesses pursue financial strategies that fund initiatives such as quality improvements and product research and development (R&D) even when the cost of securing funds is relatively high. They may consider selling common stock or incurring debt, regardless of the costs of doing so. The greatest strategic properties are maintaining quality and enhancing differentiation, not minimizing the cost of funds.
One can assess a firm’s financial strategy, as well as it performance, by-examining its financial ratios and comparing them to those of key competitors or industry averages.
3. Essay on Production:
Production/operations management is crucial to both manufacturing and service organizations. Generally speaking, as an organization, rows, the range of production strategies at its disposal also increases. Specifically, large business units can capitalize on a number of factors that accompany their larger size. Each of these factors is associated with the experience curve the reduced on in per- unit costs that occurs as an organization gains experience producing a product or service.
Interestingly, each time a company’s output doubles, production costs decline by a specific percentage, depending on the industry. For instance, with a sales volume of 1 million units, per-unit costs may be $200 in a particular industry. With a doubling of volume to 2 million units, per- unit costs may decline by 20 percent. Another doubling of volume to 4 million units may lower per-unit costs another 20 percent. The experience curve has been observed in a wide range of manufacturing and service industries, including automobiles, personal computers, and airlines. Although the precise percentages are not always known, the principle of the curve can be accurately applied to most production environments.
The experience curve, based on the idea that unit costs in most industries decline with experience, involves three underlying concepts: learning, economies of scale, and capital-labor substitution possibilities. Learning refers to the idea that employees become more efficient when they perform the same task many times. An increase in volume fuels this process, also increasing expertise.
This reasoning can be applied to all jobs- line and staff, managerial and non-managerial – at the corporate, business unit, and functional levels. Economics of scale- the reductions in per-unit costs as volume increase- can be great for businesses such as automobile manufacturers or Internet service providers.
Capital-labor substitute refers to an organizations’ ability to substitute labor for capital, or vice visa as volume increases, depending on which combination minimizes costs and/ or maximizes effectiveness. A number of American manufacturers, for example, have shifted their assembly operations across the Mexican border where labor costs are much lower.
Recent development s in production technology has modified the traditional capital versus labour dichotomy. A number of facilities have advanced to the point that products are manufactured while no workers are present, often during the night, The role of the workers in such facilities is not to produce the products but to prepare them for delivery.
Low-cost businesses with large market shares tend to benefit the most from the experience curve. Differentiated businesses often attempt to gain a similar advantage by charging higher than average prices, seeking to gain market share and ultimately lower costs by offering higher quality outputs, however, differentiators do not actively capitalize on the opportunities presented by low costs, whereas managers of businesses that compete with low-cost-differentiation do.
Regardless of strategy, seeking to exploit the experience curve can be risky Increases in volume often involve substantial investment in plant and equipment and a commitment to the prevailing technology’. However, as technology changes and renders the plant’s production processes obsolete, outdated capital equipment may have to be discarded. Balancing current investments in plant and equipment with the risk that technology will change prompts a number of firms to invest in flexible manufacturing systems that can be retooled quickly to respond to market changes.
In the late 1980s and early 1990s popularity increased for a concept called business process reengineering – the application technology and creativity involved in an effort to eliminate unnecessary operations or drastically improve those that are not performing well. As such, companies sought to “eliminate any process that did not add value” to the organizations goods and services. For example, a number of consumer goods manufacturers during this period began to rethink their packaging operations, and many of them eliminated large, cumbersome boxes in favor of less costly shrink- wrapping. Some analysts have noted a reemergence of theirs tend in the early 2000s.
Speed in developing, making, and distributing products and services can be the sources of a significant competitive advantage. In fact, an application of speed known as “time-based strategy” is a top priority in many organizations. Companies that can deliver quality products in a timely fashion become problem-solvers for their customers and are more likely to prosper. Motorola, for instance, cut the time needed to produce a cellular telephone from 14 hours to less than 2, while retail prices have fallen dramatically. Speed is equally important in customer service.
4. Essay on Total Quality Management-TQM- Considerations:
In the late 1970s and early 1980s, strategic managers became interested in a concept borrowed from the Japanese known as quality circles, whereby managers and workers would meet to discuss and implement production changes that improved quality and efficiency. This interest evolved in the late 1980s and early 1990s into a heightening of interest in quality, broadly known as total quality management (TQM). Developed by W. Edwards Deming, TQM refers to the totality of features and characteristic of a product or service that bear on its ability to satisfy customer needs: Historically, quality has been viewed largely as a controlling activity that takes place at or near the end of the production process, an after-the-fact ‘measurement of production success (i.e., the “quality control” department).
However, the notion that quality is measured after an output is produced has eroded, and quality is now seen as an essential ingredient of the product or service being provided and a concern of all members of the organization. Hence, from a production standpoint, producing a quality product lowers defects and minimizes rework time, thereby increasing productivity. In addition, making the operative employees responsible for quality eliminates the need for inspection.
As an extension of the TQM philosophy, Six Sigma seeks to increase profits by eliminating variability in production, defects and waste that undermine customer loyalty. Six Sigma is a systematic process that utilizes information and sophisticated statistical tools to improve production efficiency and quality. Practitioners receive training and advance to various levels of certification in Six Sigma concepts. A number of companies began adopting the approach in the late 1990s and early 2000s and have reported substantial savings.
Even in the best-managed businesses, problems that result in poor product or service quality can arise. Companies must guarantee an acceptable level of quality to instill confidence among buyers and avoid loss of business when such problems occur. The concept of the guarantee is both a quality and a marketing concern. Some companies even offer unlimited money-back guarantees.
In an effort to minimize short-term costs, however, many companies ignore this competitive advantage. Often, guarantees lapse after a very short period of time or contain too many exceptional conditions to be effective competitive weapons. Managers must balance the costs associated with a superior guarantee with its benefits and tailor the package to the organization’s strategy.
Nonetheless, it has been suggested that the following five desirable characteristics be included in service guarantees:
1. The guarantee should be unconditional, with no exceptions.
2. It should be easily understood and written in simple language.
3. The guarantee should be meaningful by guaranteeing what is important to the customer and making it worth the customer’s time and effort to invoke the guarantee, should he or she is dissatisfied.
4. The guarantee should be convenient to invoke and not required the customer to appeal to several layers of bureaucracy.
5. The customer should be satisfied promptly, without a lengthy waiting period.
Changes in the competitive environment can even spark quality decisions from competitors within a given industry. For example, following the terrorist attacks of September 11, 2001, many airlines engaged in vigorous cost-cutting to help stop losses that were to follow. Although a number of airlines eliminated meals on domestic flights, Continental actually look steps to improve cabin comfort and retain quality meals on its flights. Hence, whereas most airlines moved to address critical short-term financial concerns, Continental perceived an opportunity to emphasize quality and seek to develop long-term competitive advantage.
5. Essay on Research and Development:
Another function closely related to production is research and development (R&D). Product/ Service R&D refers to efforts directed toward improvements or innovations in the quality or uniqueness of a company’s outputs. Process R&D seeks to reduce operational costs and make them more efficient. R&D is most important in rapidly changing industries where production modifications are most often required to remain competitive. Low-cost business units tend to emphasize process R&D to reduce their operations costs, whereas differentiators tend to place more importance on product/ service R&D to produce improved and innovative outputs.
Process innovations may need to be technologically sophisticated to be implemented effectively, or they may not even be used at all. For this reason, a number of ideas for process innovations are never fully implemented.
Product/service innovations also involve risks. Once introduced, new products or services may not generate a level of demand sufficient to justify the R&D investment. RJR Nabisco, for example, has spent millions of dollars to develop and produce a smokeless cigarette. Although the new brands such as Premier and Eclipse were introduced with considerable fanfare demand never materialized and the product was canceled after a short time.
Interestingly, Japanese companies often abandon their new products as soon as they are introduced to force themselves to develop new replacement products immediately. U.S. companies have responded by increasingly forming direct research links with their domestic competitors, asking their suppliers to participate in new-product design programs, and taking ownership positions in small start-up companies that have promising technologies.
6. Essay on Purchasing:
All organizations have a purchasing function. In manufacturing firms, the purchasing department procures raw materials and parts so that the production department may process them into finished production. At the retail level, company buyers purchase items from manufacturers for resale to the consumer. Buyers must identify potential suppliers, evaluate them, solicit bids and price quotes, negotiate prices and terms of payment, place orders, manage the order process, inspect incoming shipments, and pay suppliers.
A business unit’s purchasing strategy should be integrated with its competitive strategy. Generally speaking, low-cost businesses seek to purchase materials and supplies of basic quality at the lowest costs possible. Large organizations are able to lower costs further through their ability to demand quantity discounts. In addition, buyers that are larger than their supplier and whose purchases represent a significant percentage of their suppliers’ revenues may also possess considerable negotiating clout.
Small companies, however, can often attain low-cost purchasing through other means, such as working with other small businesses in the same industry to pool their purchasing requirements. Because of large quantities, industry networks are often able to wield as much power as a single large business in demanding quantity discounts and negotiating terms.
It is critical to note that low costs are not the only consideration in purchasing activities. Rather, low-cost businesses should seek the ‘best cost;’ one that ‘is as low as possible consistent with basic quality standards of the purchased good or service. A low price is useless if the item breaks down in the production process or fails to meet customer demands. On the other hand, excessive quality unnecessarily raises cost and prices.
Because their customers are willing to pay higher prices, differentiators tend to emphasize the procurement of high-quality inputs, even if they cost more than alternative offerings. In these cases, the quality of the parts or products takes precedence over cost considerations, although cost minimization is always desirable.
Purchasing is the first step in the materials management process. Indeed, purchasing also includes the operation of storage and warehouse facilities and the control of inventory. Consequently, these related tasks could be efficiently and effectively conducted only if they are viewed as parts of a single operation. The just-in-time (JIT) inventory system demonstrates the interrelationships. JIT was popularized by Japanese manufacturers to reduce materials management costs. Using this technique, the purchasing manager asks suppliers to ship parts at the precise time they are needed in production to hold inventory, storage, and warehousing costs to a minimum. As such, JIT has reduced costs for a number of large firms.
Although America manufacturers have moved in the direction of JIT, this approach works particularly well in Japan where large manufacturers wield considerable bargaining power over their much smaller suppliers. Because JIT places great delivery demands on Suppliers, it does not tend to work well when manufacturers do not possess great bargaining power, as is often the case in the United States. In addition, an occasional late supplier can cripple a firm’s production process.
A JIT system also makes a company highly vulnerable to labor strikes. Recently, for example, one of the plants that supply parts to GM’s Saturn manufacturing operations shut down for a short time due to a local labor dispute. Saturn, which uses the JIT system, suddenly found itself unable to produce any cars because it had no inventory of the more than 300 metal parts that it purchased exclusively from the supplier whose plant was struck.
Many large U.S. manufacturers seek a middle ground between traditional inventory systems and JIT. Most have reduced their number of suppliers from a dozen or more to two or three to control delivery time: and quality. Companies are also strengthening their relationships with their suppliers and providing them with detailed knowledge of their requirements and specifications. By working together, buyers and suppliers can improve the -quality and lower the costs of the purchased items.
7. Essay on Human Resources:
The human resource management (HRM) functions include such -activities as planning for future human resource needs, recruitment, placement, compensation, evaluation, and employee development. Strategy HRM seeks to build a workforce that enables the organization to achieve its goals. One of the major detriments to effective HRM practices over the past two decades was an unprecedented wave of mergers and acquisitions. This massive restructuring of American business has resulted in widespread layoffs and disillusioned, formerly loyal employees. Today many workers no longer anticipate or even desire lifelong employment with a single firm.
Strategy aside, all organizations are challenged to develop employee commitment to the company and to the job. Fostering commitment and developing a strong, competitive workforce require the creation and maintenance of attractive working conditions for employees that may include providing customized benefits, child day care, parental leave, and flexible working hours, as well as such traditional needs as training and development, job enrichment, and promotional opportunities for advancement.
In response to the terrorist attacks of September 11, 2001, a number of companies have heightened efforts to screen employees and “dig deep into workers: pasts.” Many argue that such efforts improve security at company facilities, whereas others cite examples of employees allegedly losing jobs over traffic violations or bounced checks. Nonetheless, today more than ever, security is a key strategy concern.
An organization’s strategy may be affected by the increasing diversity of the modern workforce. Women, African-Americans, Hispanic-Americans, Asian-Americans, and persons with disabilities have already transformed the traditional. White, male image of man American corporations. As a result, managers must learn to help persons of diverse backgrounds, perceptions, and functional areas work effectively as team members. The success of such cooperative endeavors as cross-functional teams, quality circles, and just-in-time inventory systems requires a unity of action that can be achieved only through the mutual respect and understanding of one’s coworkers.
Interestingly, attracting him best from the new workforce is a prerequisite for reducing costs and/ or heightening differentiation. Valuable human resources may enhance efficiency by lowering absenteeism and turnover and/or promote differentiation via their innovative ideas and excellence in job performance.
In a more narrow sense, a business unit’s generic strategy can also influence specific components of its human resource program. For example, a company’s reward system should be tied to employee behavior that helps the business attain its goals. Hence, low-cost business units should reward employees who help reduce operating costs, differentiators should establish reward systems that encourage output improvements or innovations, and all businesses should reward excellent customer service.
8. Essay on Information Systems Management:
An effective information system can benefit all of a business unit’s functional areas. A computer-based decision support system can permit each functional area to access the information it needs and to improve coordination by communicating electronically with the other functional departments.
Such a system can also cut internal costs while promoting differentiation and quality through a faster response to the market. Wal -Mart’s system, for example, manages the reordering process on a real-time bash for the purchasing department while also providing critical data for the marketing department, such as which product combinations are most popular and the time of day certain products are likely to be purchased.
Whether an information system is conducted in-house or outsourced, it is deemed effective if it helps the business carry out its strategy. Far too many companies emphasize the hardware and software components of their functional system rather than the system’s ability to satisfy customer needs. Today more than ever, the application of Internet technology to serve customers and support suppliers is typically a focal point of the information system strategy.