‘A functional strategy is the short-term game plan for a key functional area within a company’.
It is the approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity.
It deals with a relatively restricted plan that provides the objectives for a specific function, for the allocation of resources among different operations within that functional area and for facilitating coordination between them for an optimal contribution to the achievement of the business and corporate-level objectives.
According to Gareth R. Jones, “Functional strategy is a plan of action to strengthen an organization’s Functional and organizational resources, as well as its coordination abilities, in order to create core competencies.”
Corporate and Business strategies give birth to functional strategies, which are implemented in the organization through functional and operational implementation.
This strategy refers to single function operation and the activities involved in it. This is an operating level of strategies. The decisions taken at this level are referred as tactical decisions.
The main purpose of functional strategy is to achieve the corporate and business level objective in specific functional area by the optimum allocation of the resources available to maximize the profitability.
1. Introduction to Functional Strategy 2. Meaning of Functional Strategy 3. Definitions 4. Concept 5. Need 6. Features 7. Importance
8. Types 9. Development. 10. Managerial Aspects of Managing Functional Strategy 11. Considerations 12. Functional Implementation 13. Functional Strategies in Different Functional Areas.
Functional Strategies in Strategic Management
Functional Strategy – Introduction to Functional Strategy
According to Gareth R. Jones, “Functional strategy is a plan of action to strengthen an organization’s Functional and organizational resources, as well as its coordination abilities, in order to create core competencies.” Corporate and Business strategies give birth to functional strategies, which are implemented in the organization through functional and operational implementation.
This strategy refers to single function operation and the activities involved in it. This is an operating level of strategies. The decisions taken at this level are referred as tactical decisions. The main purpose of functional strategy is to achieve the corporate and business level objective in specific functional area by the optimum allocation of the resources available to maximize the profitability.
When all the functional departments of any organization either it is marketing, finance, human resource, operations, legal, supply chain or information technology, work together in same direction to cover the business level objectives, and hence by doing so achieve the corporate level goals, then only the basic purpose behind functional level strategies can be fulfilled.
Each functional department carries out its own functional responsibility by executing short and medium term plans to play its role in meeting overall corporate objectives. For example, in marketing strategy; the process may focus on selecting the target market, developing a market plan that may satisfy the overall needs of the target customers.
In human resource strategy, the functions may deal with recruitment and selection of the employees, their retention, training and development, evaluation, and remuneration part. Financial strategy may go with issues of funding, shares, debt financing, depreciation etc.
The functional strategies relate to the operating divisions and thus connect to business processes and value chain. Higher-level strategies depend upon these strategies as they provide input to the business level and corporate level strategies. Once the higher-level strategies are formulated, the functional units translate them into the course of action plan, which each department is supposed to complete within a due course of time for the success of the strategy.
An organization with multi-units dealing in several businesses at a same time, create a business strategy for each business and each business with separate sets of departments constitute their own functional strategies for each department. For example, if an organization decides to go for differentiation strategy, all the activities of each department, must be focused on fulfilling that purpose only.
The strategy may be focused on providing customized products, focus on value creation of the product, charging high prices and providing innovative and improved products by going through research and development. The whole idea behind the formulation of these strategies is to gain competitive advantage and maximizing resource productivity in terms of increased cost-effectiveness.
It is very important to understand the significance of alignment among the corporate, business and functional level strategies. The corporate level strategy will not be effective if the business and functional level strategies do not go in consistency with it. Thus, confirming the reliability of business and functional level strategies, which support the grand strategies for the organization, is as important as picking up the right strategy for the corporate level. Functional level strategies label the support function of the business.
Functional strategy deals with developing and nurturing a distinctive competence in a functional area in order to maximize resource productivity. Functional strategy contributes to business level strategy and corporate strategy as well. It also helps to develop competitive advantage.
A corporation consists of several business units and each business unit consists of several departments and functions. Each business unit adopts its own business level strategy and its own functional strategies. The orientation of functional strategy mainly depends on its business level strategy. If the unit follows a business level strategy of cost leadership, a set of functional strategies would be needed to support cost leadership strategy.
Functional Strategy – Meaning of Functional Strategies
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 utilisation 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 organisation 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.
Functional Strategy – Definitions
The activities and processes—such as human resource management, research and development, finance, production, and marketing — constitute the strategic functions of an organisation. Strategies designed to enact these strategic functions are referred to as functional level strategies. A functional strategy is the short-term game plan for a key functional area within a company.
It deals with a relatively restricted plan that provides the objectives for a specific function, for the allocation of resources among different operations within the functional area. It facilitates coordination between them. Functional strategies contribute to the achievement of business and corporate-level objectives.
According to Thompson and Strickland, “The term functional strategy refers to the managerial game plan for a particular functional activity, business process, or key department within a business. A company’s marketing strategy, for example, represents the managerial game plan for running the marketing part of the business. A company’s new product development strategy represents the managerial game plan for keeping the company’s product lineup fresh and in tune with what buyers are looking for.”
Pearce and Robinson define “a functional strategy is the short-term game plan for a key functional area within a company. Such strategies clarify grand strategy by providing more specific details about how key functional areas are to be managed in the near future.”
According to Thomas Wheelen and David Hunder, “Functional 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. Just as a multidivisional corporation has several business units, each with its own business strategy, each business unit has its own set of departments, each with its own functional strategy.”
Thus, a functional strategy is a set of decisions and actions managers make and take to attain superior competency in business functions in accordance with the corporate and business-level strategies. Once corporate and business-level strategies are developed, management must turn its attention to formulating strategies for each business unit’s functional areas.
Functional Strategy – Concept
‘A functional strategy is the short-term game plan for a key functional area within a company’. It is the approach a functional area takes to achieve corporate and business unit objectives and strategies by maximizing resource productivity.
It deals with a relatively restricted plan that provides the objectives for a specific function, for the allocation of resources among different operations within that functional area and for facilitating coordination between them for an optimal contribution to the achievement of the business and corporate-level objectives.
Functional strategies clarify corporate and business strategies by providing more specific details about how key functional areas to be managed in the near future.
Functional strategy is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage.
Functional strategy, as is suggested by the title, relates to a single functional operation and the activities involved therein. Decisions at this level within the organization are often described as tactical. Such decisions are guided and constrained by some overall strategic considerations.
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 higher level strategies and guidelines therein that are set at higher levels of an organization.
Parent business unit’s strategy dictates the orientation of the functional strategy. For example, a business unit pursuing a competitive strategy of differentiation by offering high quality product or service requires an operation functional strategy that emphasizes quality assurance processes than a cheaper, high-volume production.
Simultaneously, a human resource functional strategy emphasizes the hiring and training of a highly skilled, but costly workforce. A marketing functional strategy that emphasizes distribution channel “pull” using advertising to increase consumer demand over “push” using promotional allowances to retailers.
If a business unit were to follow a low-cost competitive strategy, however, a different set of functional strategies would be needed to support the business strategy. Functional strategies must be developed in the key areas of marketing, finance, production/operations, R&D, and human resources. They must be consistent with long-term objectives and grand strategy.
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. In a sense, functional strategies translate grand strategy into action designed to accomplish specific annual objectives.
For every major subunit of a company, functional strategies identify and coordinate actions that support the grand strategy and improve the likelihood of accomplishing annual objectives.
Functional strategies play an important role in implementing corporate and business strategy. But to increase the probability that these strategies will be successful, more specific guidelines are needed for the business’s operating components. Thus, functional strategies clarify the business strategy, giving specific short-term guidance to operating managers.
A major task of strategy implementation is to align or fit the activities and capabilities of an organization with its strategies. Strategies operate at different levels and there has to be congruence and coordination among these strategies. Such congruence is the vertical fit. Then there has to be congruence and coordination among the different activities taking place at the same level. This is the horizontal fit.
Functional Strategy – Reasons why Functional Strategies are Needed
Functional strategies tell the functional managers what to do in their areas to achieve business objectives. Glueck and Jauch have described the following reasons to point out why functional strategies are needed.
The reasons why functional strategies are needed can be enumerated as follows:
i. Aimed at making the strategies formulated at the top management level practically feasible at the functional level.
ii. Provide flow of strategic decisions to the different parts of an organization.
iii. The basis for controlling activities in the different functional areas.
iv. The time spent by functional managers in decision-making is reduced as –
a. Plans lay down clearly what is to be done, and
b. Policies provide the discretionary framework within which decisions need to be taken.
v. Help in bringing harmony and coordination as they remain an important part integral part of major strategies.
vi. Similar situations occurring in different functional areas are handled in a consistent manner by the functional managers.
Functional strategies play two important roles:
i. They provide support to the overall business strategy.
ii. They spell out how functional managers will work so as to ensure better performance in their respective functional areas.
Functional Strategy – 20 Important Features
Some important features of functional strategy are as follows:
1. The time span of a functional strategy, as compared to a business-level strategy, is short.
2. It focuses attention on what needs to be done now to make the grand strategy work.
3. It is more specific and action-oriented because it clearly outlines what should be done in each functional area so as to achieve the corporate objectives.
4. Functional strategy pertains to the function, department, division of the enterprise.
5. It has to be in pursuance of the overall corporate strategy.
6. It acts to achieve corporate and business unit objectives by maximizing resource productivity.
7. It is the game plan to manage a principal subordinate activity within a business.
8. Functional strategy is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage.
9. The orientation of the functional strategy is dictated by its parent business unit’s strategy.
10. Functional strategy is narrower in scope than business strategy. It contains relevant details of the overall business game plan by setting out the actions, approaches and practices which are to be employed in managing a particular function.
11. It may differ from region to region.
12. Functional strategies should be in sync rather than serving their own narrower purposes. They should be in coordination and consistency with long-term objectives and grand strategy.
13. These functional strategies have to be related to each other and to the overall corporate strategy.
14. Implementation of these strategies involves a wide range of policy decisions to be made relating to the functional areas.
15. The focus of these functional strategies is often towards external environment.
16. Functional strategies help in implementation of grand strategy. These translate grand strategy into action.
17. There might be several sub-functional areas within functional strategies.
18. Functional strategies are made within the guidelines that have been set at higher levels.
19. These are detailed statements of the “means” or activities that will be used to achieve short-term objectives and establish competitive advantage.
20. A functional strategy supports business-level strategy, which in turn supports corporate-level strategy.
Functional Strategy – Importance
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:
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.
Thompson and Strickland write, “A company needs a functional strategy for every major business activity and organisational 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.”
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 organising and activating specific subunits of the company to pursue the business strategy in daily activities.”
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.
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.
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.
i. They give operating personnel a better understanding of their role in the firm’s mission.
ii. The process of developing them becomes a forum for raising and resolving conflicts between strategic intent and operational reality.
iii. They provide a basis for developing budgets, schedules, trigger points, and other sources of strategic control.
iv. They can be powerful motivators, especially when connected to the reward system.
Functional Strategy – Types: Marketing Strategy, Financial Strategy, Operations Strategy and Human Resource Management Strategy
Let us now discuss these functional strategies in detail:
Type # 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.
It derives from the broader corporate strategies and corporate goals. A strategy consists of range of refined thoughts and organized series of tactics. It is not possible to implement a marketing plan, if it is not based upon sound strategy formulation.
Marketing strategy includes the successful understanding of internal and external environment. Internal environment factors include the analysis of marketing mix, whereas external factors include the analysis of political, legal, economic, social, technological, cultural, environment, and evaluation of customer, competitors, and target market. Various analyses can be performed to understand the strategic constraints and focus such as – SWOT analysis, GE/McKinney matrix or COPE analysis.
As every unique business has unique features, the marketing strategies of different businesses, also differ in accordance with those.
However, one can categorize the strategies in four major schemes given below:
i. Market dominance based strategies – It depends upon the basis of the market share, the firm holds in the market or the dominance of an industry is required to make the basis for this categorization. There may be three types of market dominance strategies such as – Leader, Challenger, and follower.
ii. Porter generic strategies – It focuses to the scope of market penetration and firm’s sustainable competitive advantage. It can be further divided into three broad categories such as – cost leadership, product differentiation, and market segmentation.
iii. Innovation strategies – It focuses on the rate a firm develops new products and innovative business models. There are three types such as – pioneers, close followers, and late followers.
iv. Growth strategies – It deals with the questions what should be the measures, which may help the organization in proper growth. The most common ways may be horizontal integration, vertical integration, diversification, and intensification.
A good marketing strategy consist the following points:
a. Flexible – Having an overall control is needed while implementing any plan but there must be some space for changes also, as the needs and situations may keep altering and if there is no possibility for flexibility in the plan, adaption and implementation of change may become difficult.
b. Comprehensive – Having a complete overview is very important before going for implementation of the plan, as the plan may lead to failure if any necessary details have been missed.
c. Consistence – Having consistency, is very much needed in any good marketing strategy as there is no use of the plan if it couldn’t correlate with the other functional strategies and fail in achieving the overall corporate and business level objectives. Maintaining consistency also ensures that employees are in accordance with what has been mentioned in the functional strategy.
d. Rational – Maintaining rationality is very necessary; as the plan must flow in the logical manner, otherwise it would not come up with corporate level objective.
Marketing strategy relates to the formulation and implementation of marketing mix that is product, price, place, and promotion.
Type # 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?
The financial plans and policies should focus on some major points:
i. Determining the financial resources, which are necessary to meet the operating program of the organization?
ii. Developing plans for obtaining the obligatory external funds.
iii. Governing the allocation and use of funds by founding and upholding the financial control system.
iv. Formulating programs, which max help in providing the most effective profit-volume-cost relationship.
v. Analyzing the operation’s financial results.
vi. Reporting the data to the top management and planning the future operations of the firm.
A sound financial plan, apart from cost, solvency, and liquidity and profitability, has few more prominent characteristics such as – it is based on clear cut objectives, it’s simple in nature, shows less dependency on outside sources, and is flexible in nature.
The financial plans and policies deal with three major issues such as:
b. Usages, and
c. Management of funds.
The details are as follows:
a. The Sources of Funds:
It refers to the owner’s capital, borrowing from public through shares and debentures, and loans from financial institutions. Financial plans and polices are related with the requirements of capital, desired capital structure, reserves and surplus, and relationship with lenders. It is often the hardest part as raising the funds is the first and the most important requirement for setting up any business.
Raising funds need careful planning and ask the answers of few questions such as how much finance is required? When is the finance needed? For how long is it needed? What security can be provided for availing the finance? Can some ownership be given at the startup of the business, in return for investment?
There may be some external sources and some internal sources, which may facilitate the startup finance. The internal sources that are from within the organization may be personal sources such as – the savings and inheritance of the entrepreneur, borrowings from friend and family and credit cards, retained profits, and share capital that is invested by the founder. The external sources are the outside providers of fund. It includes, loan capital, share capital, and venture capital.
For instance, the financial plan of an organization is to raise 50% funds by borrowing from public and rest 50% by owned funds. An organization generally does not use the reserves as funds because they are used for investment and contingency purposes.
b. Usage of Funds:
It implies that the funds can be used for making investments, giving loans and advances, and offering dividends to shareholders. In short, it asks the answer of ‘how the entrepreneur is planning to spend the fund or money?’ The funds should be utilized in an efficient and effective manner.
Financial plans and policies allocate funds to carry out various strategies related to expansion of business and giving dividends to shareholders. A plan can be an expansion plan, such as – merger and acquisition with another organization; whereas a policy can be giving minimum 20% of dividend to shareholders.
c. The Management of Funds:
Help in the optimum utilization of funds. The plans and policies at this level relate to areas, such as cash and credit management, tax planning and accounting, and budgeting.
Thus, the plans and policies at the financial level are very important since they determine the sources, usage, and management of funds that help in the implementation of projects.
Type # 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.
While on the other hand, operational side of marketing refers to the day-to-day activities or tactics to manage things such as – pricing, promotion of product or service, and its distribution.
The procedure, which is used to formulate the operations strategy, is known as the process of operations strategy, which defines the way ‘how to go for operations strategy’?
We can broadly describe two approaches for devising an operations strategy:
i. Top-Down Approach:
It determines the flow of directions or decisions from the top level to the lower level in the organizational hierarchy. The top-level management takes the decisions and set the organizational objectives and policies, and then those decisions and policies are implemented by the different functional areas of the organization such as marketing, finance, HR. etc.
ii. Bottom up Approach:
It originates from the practical experiences of the past. It is not always feasible to formulate the strategy without knowing the actual condition of the internal and external environment. Bottom up approach suggests forming the ideas from their earlier experience of dealing with customers, suppliers, distributers, and their own processes and then invent the strategies based upon these experiences.
In any organization corporate and business level strategies set the base for standing in market with competitors that in turn affect the business, the target market, and the manner, which defines how to serve the market.
Thus, operations strategy formulates a long-range game plan for the production of goods and services of any organization and provides a road map for the production function to achieve the business level and corporate level strategies simultaneously.
Type # 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:
i. Developing a strategic framework
ii. Generating HR mission statement
iii. Applying SWOT analysis
iv. Making HR planning decisions.
Human resource management strategy focuses on organization, culture, people, and systems. It focuses on the implementation of the specific functions of HR, which includes policies on recruitment and selection, disciplinary policies, reward policies, training and development policies and payroll processes etc.
Thus, HRM strategy is an overall plan, which concentrates on implementation of specific HR functions, which are generally administrative in nature and help in correlating with the whole business strategy.
Human resource management comprises of various practices:
i. Human resource planning
ii. Recruitment and selection
iv. Training and development
v. Skill management
vii. Performance appraisal
viii. Personal administration
ix. Time management
xi. Employee benefit and ethical issues
xii. Personal cost planning
xiii. Labor relations.
The Human resource management typically talks about ‘best practices’ which means nothing but the correlation between the HRM strategy and the overall corporate strategy by coordinating the firm’s personal needs with organization’s objectives. In any organization, personnel’s proper management is very necessary, as it is the employees who implement the policies and turn the objectives into reality.
Employee feedback, continuous monitoring, surveys are all done through human resource management policies. Thus, as a functional department HR plays a significant role.
Human resource management strategies include some basic features, which are as follows:
a. Organizational Management:
It refers to the management of an organization’s employees. Contribution to organizational practices include improving employee commitment, maintaining higher level of productivity through higher level of skills, enhancing quality and efficiency, lowering the absenteeism and turnover.
The idea behind organizational management refers that better organizational performance can be gained through the adoption of some definite best practices in Human resource management. The practices include selective hiring, training and development of the employees, facilitating employment security, free flow of information sharing, minimizing difference, increasing overall performance of the organization, and motivating self-managed teams.
The organizational management tries to maintain a balance in between the personal and organizational goals of an employee and ensures a close coherence between the HR policies of the organization and the external environment or business. The overall idea is to-support the organization by attracting, retaining and managing employees effectively to meet the corporate strategic goal.
b. Personnel Management:
It refers to the management of individuals or employees who make up the workforce of an organization. The personal management ensures the supply of the skilled and qualified individuals and develops the capability of current workforce. The basic idea is to minimize the financial risk and to gain a maximized return on investment of human capital in the organization.
It helps in securing future survival and long-term success for the organization. The key functions of personal management include resourcing capable workforce, their recruitment and selection, employee record retention, training and development of employees, keeping track of local, state and central labor laws, design and development of the organization, implementation of change management, performance and behavioral management, job and workforce analysis, industrial and employee relations, compensation management, and employee motivation.
c. Industrial Management:
It refers to the study of employment relationship. It helps in designing policies related with the betterment of worker and employment relationship. It avoids the idea of treating the worker as a mere commodity. It favors to treat workers as human being entitled to every human right.
Traditionally the field discusses with the fields such as – trade unions, collective bargaining, and worker’s participation in management, grievance management, industrial disputes, labor laws, rules and code of conduct.
According to Lester, “Industrial relations invoke attempts at arriving at solutions between the conflicting objectives and values; between the profit motive and social gain; between discipline and freedom; between authority and industrial democracy; between bargaining and cooperation and between conflicting interests of the individual, the group and the community.”
Industrial relations include all the factors that put impact on the behavior of the people at work such as:
i. Institutions that comprises of the government, employers, trade unions labor courts, union associations and other organizations which influence the organization in direct or indirect ways.
ii. Characters that study the role of worker unions. It comprises of industrial relation officials or employer’s federation officials, mediators, arbitrators, judges of labor court, tribunal, etc.
iii. Methods that focus on the participation of workers in industrial relation schemes, collective bargaining, grievance handling machinery, dispute settlements machinery, union reorganization, hearing of labor courts etc.
iv. Contents that include matters relating to employment circumstances such as – working hours, pay issues, health and safety issue, leave with wages, lay-off, retirements, social security etc.
Functional Strategy – Development of Functional Strategies
The development of functional strategies aims at formulating the strategies at the top management level that is practically feasible at the functional level. Strategies need to be segregated into viable and unviable functional strategies. Viable functional strategies are those that are compatible with each other, thereby augmenting the horizontal fit.
In this way, the functional managers can implement the strategies. The process of development of functional strategies may range from the formal to the informal. Larger and more complex organizations may have several strategies related to every major function. Comparatively smaller organization may operate with fewer policies, most of which could be informal and understood.
The concept of vertical fit defines functional strategies in terms of their capability to contribute to the creation of a strategic advantage for the organization.
Viewed in this way we can have the following types of functional strategies:
(1) Strategic marketing functional strategies focus on the alignment of marketing management within an organization with its corporate and business strategies to gain a strategic advantage.
(2) Strategic financial functional strategies focus on the alignment of financial management within an organization with its corporate and business strategies to gain a strategic advantage.
(3) Strategic operations functional strategies focus on the alignment of operations management within an organization with its corporate and business strategies to gain a strategic advantage
(4) Strategic human resource functional strategies focus on the alignment of human resource management within an organization with its corporate and business strategies to gain a strategic advantage.
(5) Strategic information management functional strategies focus on the alignment of information management within an organization with its corporate and business strategies to gain a strategic advantage.
The concept of horizontal fit means that there has to be an integration of the operational activities undertaken to provide a product of service to a customer. These have to take place in the course of operational implementation.
Operational implementation is the approach an organization adopts to achieve operational effectiveness. When an organization performs value-creating activities optimally and in a way that is better than its competitors, it results in operational effectiveness.
Functional Strategy – Managerial Aspects of Managing Functional Strategy
Each business enterprise has its own set of departments. Each department has its own functional strategy. Within the general framework created by the corporate and business strategies, each business function needs to identify and undertake activities unique to the function. The functional strategies delineate the activities to be undertaken in each part of the business and usually include them as a core part of their action plan.
A few managerial aspects of managing functional strategy can be noted:
The main responsibility for conceiving strategies for each of the various important business functions and processes is normally delegated to the respective functional department heads and process managers.
Thompson and Strickland think that “In crafting strategy, the manager of a particular business function or process ideally works closely with key subordinates and touches base often with the managers of other functions/processes and the business head. If functional or process managers plot strategy independent of each other or the business head, they open the door for uncoordinated or conflicting strategies.”
Thompson and Strickland further point out that compatible, collaborative, mutually reinforcing functional strategies are essential for the overall business strategy to have maximum impact.
Plainly, a business’s marketing strategy, production strategy, finance strategy, customer service strategy, new product development strategy, and human resources strategy should be in sync rather than serving their own narrower purposes. Coordination and consistency among the various functional and process strategies are best accomplished during the deliberation stage.
After the pros and cons of the potential strategic alternatives have been identified and evaluated, and must be selected for implementation. By now, it is likely that many feasible alternatives will have emerged. How is the best strategy determined?
Perhaps two most important criteria are:
i. The capability of the proposed strategy to deal with the specific strategic factors developed in the SWOT analysis.
ii. The ability of each alternative to satisfy agreed-on objectives with the least resources and the fewest negative side-effects.
The selection of the best strategic alternative is not the end of strategy formulation. The organisation must then engage in developing policies. Policies define the broad guidelines for implementation. Flowing from the selected strategy, policies provide guidance for decision making and actions throughout the organisation. Policies tend to be rather long lived and can even outlast the particular strategy that created them. Policies can make the implementation of specific functional strategies easier.
Certain functional strategies may prove very dangerous. Hence, they should be avoided. For example, imitating a leading competitor’s strategy might seem to be a good idea, but it ignores a firm’s particular strengths and weaknesses and the possibility that the leader may be wrong.
Functional Strategy – Consideration that Help Strategists to Achieve Integration of Functional Strategies
The key activities performed for the implementation of the corporate and business strategies give rise to functional strategies. The functional areas in any organization are, therefore, based on the segregation of the key activities.
But segregated activities need to be brought together, since all activities are performed to achieve the overall objectives of an organization. Integration of functional strategies provides the means for such integration.
Mechanisms that ensure integration can take the form of committees, consisting of the top management and the functional heads. These committees can be entrusted the responsibility of integrating the functional strategies, reviewing strategy implementation, and suggesting modifications in view of strategic changes.
There are certain considerations that help strategists achieve integration of functional strategies. These considerations include:
1. Internal consistency,
2. Development of organizational capability
3. Trade-off decisions
4. Intensity of Linkages
5. Timing of implementation of functional strategies
1. Internal Consistency:
The segregation of key organizational tasks gives rise to the need for internal consistency. The internal consistency in the various functional strategies ensures that the different functional areas work for a single purpose. Absence of internal consistency may lead to a sub-optimal implementation of strategy.
For instance, an organization pursuing a strategy of rapid expansion through differentiation may follow an aggressive marketing, R&D emphasizes on operation, a progressive HR policy, and a conservative financial approach to sources of funds. Among these functional areas, finance may cause a problem as a conservative use of sources of funds may restrict the options for the internal generation of resources.
The strategies would be consistent, if the company is able to finance its rapid expansion through its internal sources alone. But internal sources remain inadequate to finance rapid expansion. Therefore, a conservative financial strategy would be inconsistent with other functional strategies.
2. Development of Organizational Capability:
The development of organizational capability in terms of strategic or competitive advantages is relevant to the integration of functional strategies. Synergies occur across functional areas, and core competencies emerge as a result of the concentration of resources to the areas where an organization desires to create strategic advantage.
A company may desire to be a market leader, a low cost producer, a technologically superior competitor, or an ideal employer. For achieving these objectives, an integrated approach to functional strategies would be necessary.
For instance, a company that aims to be a market leader would have to offer best quality products at a competitive price through an efficient distribution network supported by an aggressive promotion policy. The functional strategies relating to other areas would have to supplement these marketing strategies. Thus the development of organizational capability depends on the degree of integration of functional strategies.
3. Trade-Off Decisions:
The formulation and implementation of functional strategies involve trade-off decisions. Marketing-orientation in functional strategies in some way contradicts with operations-orientation. For instance, marketing orientation would emphasize low-volume specialized production, while operations would require large-volume production with lesser product variations.
Some sacrifice in some areas is necessary if emphasis is laid on other functional areas. In fact, the integration of functional strategies serves to minimize aberrations due to trade-off decisions and optimize the implementation of strategies.
4. Intensity of Linkages:
The intensity of linkages between different functional areas is an important consideration in determining the level of coordination between functional areas. For instance, a high capital-intensive business with high manufacturing costs needs a strong linkage between R&D and manufacturing.
This will help in developing cost-saving process improvements. Similarly, a low cost strategy would require a higher level of coordination between marketing and operations. However, the intensity of linkages may vary with the requirements of strategy from time to time.
5. Timing of Implementation of Functional Strategies:
The timing of implementation of functional strategies must be designed so that they mesh correctly. The different functional strategies have to be implemented at the appropriate time so that they complement each other.
For instance, a number of computer companies attempted to rush into new products with marketing programs promising more than could be delivered. Customers were anxiously awaiting the arrival of their new machines before production was capable of providing the necessary output. So lead times within each functional area need to be considered in relation to one another before plans are implemented.
Thus the strategists have to consider the above issues to make the implementation of functional strategies effective.
Functional Strategy – Functional Implementation of Strategies (Policies)
In the context of strategic management, by the term policy we mean specific guidelines for taking managerial actions and decisions for successful implementation of the corporate strategy. Following Newman and Logan (1971), we may claim that a carefully selected policy widens the scope of the corporate strategy by including clarity in the concept and by adding workability to the system for taking functional decision in consistency with the overall means.
Buskrik (1971), Thompson and Strickland (1989) and Alexander (1983) have also stressed upon the need for factorization of corporate strategy into functional policies. According to them, designing of functional policies is needed to limit discretion, appreciate uniformity in handling similar activities, ensure consistent pattern of organizational behavior, reduce uncertainties in repetitive problems, dispose quickly the routine issues, avoid hasty decisions during the period of transition from the one strategic phase to another, and provide a foundation for superior performance.
Major issues, which a production policy should address to are the followings:
(i) Involvement of the firm in the production process
(ii) Selection, installation and maintenance of the production process
(iii) Installation and variations of the production capacity
(iv) Selection of plant location
(v) Arrangements of new and replacement of the existing production facilities, and
Involvement of the firm in the production process has two extreme states. One is the state of complete manufacturing in an integrated way both in forward and backward directions and the other is the state of complete buying with firm’s identity labelled before selling. Twiss (1977) examined in details different in-between-states of production. His identification is in terms of self-arrangement of material inputs, manufacturing of standard parts, manufacturing of minor non-standard parts, manufacturing of major nonstandard parts, assembly operation of components and external purchases.
According to Twiss (1977), justification for investment in productions is needed when the organization wants to make rather than buy different parts. The cost of manufacturing, the degree of dependence, development of core competence and special quality requirement are the four considerations based on which the organization can compare the make and buy alternatives and decide about the degree of its direct involvement in the production process.
Some organizations start with selling the externally purchased items. After being able to enjoy a sizeable market, they start doing the assembly operation of the externally purchased components. Further expansion of their activity leads to manufacturing of non-standard major components.
In this way, these organizations start increasing their independence and develop core areas of operation. This backward movement, in the next state, leads to making of minor special components. Some organization even goes for manufacturing standard parts where economies of scale can be enjoyed. There are product fields where arrangement of materials draws the attention of production planners.
Producers of edible oil may take interest in growing seeds through own managed cultivation, and of fruit canning firms may like to maintain own orchards. Similarly, metal manufacturers may operate mines to extract ores by themselves.
The polar opposite situations also arise. For example, some organizations start with dealing in different materials. Realizing the need for value addition, and developing the requisite financial and skill base, they go for manufacturing standard parts where the key function is production rather than marketing. These organizations basically move in the forward direction and may, at the end, start doing the rest of the work. When the capacity restriction leads to refusal of customers’ demand, they go for external purchases.
Thus, there is no hard and fast rule of increasing or decreasing one’s involvement in the production process. Depending on the nature of the product field and the position of the firm, it may decide its own production policy. One may also think of both contractual and self-manufacturing to ensure timeliness, independence and core competence (COSMETIC).
In this type of integration, the concepts of both making and buying have been propounded. Such firms are in favor of an ideal/optimal mix of make and buy decisions for every stage of production. COSMETIC integration can offer better coordination, quality assurance and cost management, greater independence and lesser degree of uncertainty. Further, it provides with scopes for retention of external relationship and maintenance of standards for external negotiations and internal evaluations.
Choice of production process mainly includes choice of technology and choice of facilities. For some industries, this choice is very limited. But for a few others, alternative technologies do exist and the firm has to make the proper selection. It is also important to decide on factor intensity and degree of automation. At the time of taking the latter decision, planners have to take into consideration response of the existing workforce. Many of the automation moves have failed in the past due to incomplete communication from the top and resistance from the bottom.
The problem of capacity planning gives rise to several policy issues. One has to estimate the normal period requirements and the peak period requirements, keep provisions for future growth in demand and arrange for balanced facilities. There are two types of policy decision – one is to minimize, if not eliminate adjustments in capacity and the other one is to adjust capacity as per market demand.
In the former case, keeping of output stock, refusal of demand, allowing customers to be in the waiting line, and allowing the price to vary or any combination of these four policies may be preferred to maintain a near constant rate of production. To accommodate variations in capacity, one may resort to additional production through overtime works, subcontracting, buying or any combination of these three approaches.
Selection of plant location assumes importance when an organization opts for internal growth strategy but its existing facilities cannot support the increased rate of production. This problem of choice of location is very important for transnational companies who may prefer to carry out manufacturing only at a few places having locational advantages and transhift the products to all the global markets.
Cost of production and transportation are important objective factors that regulate the strategic choice of plants. Besides, there are subjective factors governing the choice of location. For example, availability of skilled hands, prevailing wage rate, political environment, absenteeism etc. are the key subjective factors, influencing plant choice.
Selection, maintenance and replacement of equipment and other production facilities are important policy decisions that can strengthen the long-term ability of a firm to compete in the market and realize the corporate objectives. Quality of the processing equipment can help in gaining competitive advantages and should be taken note of. It is the quality of the equipment, which gets reflected in the quality of the final product.
Further, equipment must be cost effective and should be based on the present State-of- Art. Maintenance of equipment, if properly done, can increase the lives of the equipment and their performances. Preventive maintenance can increase machine availability time, and minimize the bottlenecks in assembly line balancing, arising out of sudden failures.
Another key area where attention should be given is outsourcing. Choices about the vendors and their developments are important decisions, which goes beyond cost and availability. It is essential to maintain close relationship for mutual benefit. Related issues are the mode of transportation (by rail, road or air), the speed of delivery and the lead-time.
Following Lazer and Kally (1962), one can identify three categories of marketing decisions. Firstly, we are concerned with product mix and or service mix along with the complete package of offer. Secondly, we are concerned with either the distribution mix in terms of channels of distribution and actual physical distribution.
Lastly, we are concerned with the communication mix covering all types of promotional communication for creating awareness and facilitating penetration. According to McCarthy (1964), decision variables are expressible in terms four P’s namely Product, Price, Place and Promotion and a combination of strategic decisions on P’s is known as marketing mix of the firm.
If the marketing mix of the firm does not support and is not supported by other functional policies like production and financial policies, then the corporate objectives cannot be met. It is therefore important to interact with other functional areas for arriving at the marketing mix.
Marketing head should specify which products are to be expanded. But this requires views of the R&D wing, in case the product concept is a new one, and the views of the production wing, in case expansion in capacity is needed. On many occasions, expansion in volume of operation may reduce the profit. A clearance is, therefore, needed from finance wing of the firm for operating at super optimal level.
According to Frain (1981), the four P’s concept of McCarthy is an oversimplification of the marketing operation.
Depending on the nature of the product field, it may present the key issues of the marketing operation as follows:
(i) Marketing research,
(ii) Production planning and development including packaging and branding,
(iii) Pricing decision,
(v) Marketing communications including personal selling, advertising and sales promotion, and
(vi) After sales service.
Mixing these ingredients within a policy framework, to achieve the corporate objective, gives rise to marketing policy. It is easy to note that the nature of the product will influence the balancing of the ingredients. Further, the concept of a mix suggests that the relative weightage of different ingredients may vary from time to time depending on the changes in the external environment and internal capabilities. Thus, the marketing policy must be dynamic and not static.
In case of production policy, we have already seen that a relatively static policy is preferred. In this sense, marketing policy formulation is different from that of production policy formulation.
The dynamicity of marketing policy stresses upon the need for continuous marketing research.
Under marketing research, the organization is interested in finding answers to a number of queries as listed below:
(i) Who are the current users of our product? Who are the potential users?
(ii) From where do they buy the product, and when do they buy the product?
(iii) What is the size of the total market? What is our market share?
(iv) Is the market growing, static or shirking in size?
(v) What is the degree of customer satisfaction?
(vi) If customers are not satisfied, can we improve the product for their satisfaction?
(vii) What new products can be introduced?
(viii) How can the customers be informed about the products? How can we motivate them to buy our products?
All these questions may not be relevant. Depending on the type of corporate strategy adopted by the firm, one has to modify the above list and work out the marketing policy based on the answers received.
Marketing communication typically comprises advertising, sales promotion and publicity. Mass communication is needed for mass selling. Personal selling needs two- way communications. The function of personal selling is to get sales orders. But this is an exception than the rule for mass selling. For a rapid turnover consumer product, marketing communication should receive the highest attention of the policy makers and its priority should be significantly higher than that of personal selling.
For durable consumer products, the nature of attention and priorities will be similar. However, for the former case continuous marketing research assumes lot of importance and for the latter case continuous marketing research is not so important. For industrial consumption goods, personal selling draws maximum attention.
But marketing communication becomes a non-issue. So is the case for marketing research. For industrial durable products, personal selling is having the highest priority. Marketing research and marketing communication also receive due attention.
In case of advertising as a method of communication, crucial policy decision relates to choice of media. While economies of media is an important factor, the type of people using the media and the condition under which the media is used are also very important for making a choice.
Magazines, televisions, outdoor media, radio, cinema, national press and regional press are the basic media that one can opt for in a pure or mixed form. The extent of repetition, and the number of insertions etc. are the decision problems that follow the choice of media decision.
In case of personal selling, face-to-face communication, electronic mail communication, telephonic communication and communication through correspondence are the alternative modes of operation. It can be carried out on the organization’s own premises, on the clients’ premises or in exhibition selling. While cost of personal selling is higher than advertising, the information feedback is worth paying the additional amount.
The other important policy decision relates to choice of channels. Utility of place and utility of time of a product or a service are provided by this physical process of distribution. From place and time utilities, one can identify the transportation element and warehousing element of decision making. Storage often makes up for economies in production and takes care of uncertainty and seasonality of demand. For some items, storage improves the quality of product (e.g., cheese, wine, timber).
For rapid turnover consumer products, availability should preferably be made through a variety of retail outlets. For durable consumer goods, specialist outlets are needed where specialized information about the products and after sales service are available to the users.
For industrial consumption goods, there can be numerous ways of ensuring distribution. There may be direct distribution via engineers’ merchants and suppliers, and through dealers. For industrial durable products, direct distribution to the users is in practice. It is preceded by lengthy negotiations on specification and performance.
Thus, channel choice is dependent on the nature of the product and the size of the market. It is also dependent on the distributional emphasis given by the organization. Some organizations may be interested in limited coverage and some others may be interested in large-scale penetration, i.e., wide coverage.
The concept of multiple channels or dual distribution is also getting appreciation in today’s competitive market. By dual distribution we mean two or more channels for two or more grades of the same product. For premium items, there may be exclusive and limited coverage, and for items in the lower range of price bracket, there may be penetration type of distribution.
This is so because the superior grades are meant for a small market segment and the inferior grades are meant for mass market. A somewhat similar is the concept of parallel channels. Parallel channels, like multiple channel or dual distribution, use multiple distribution networks. But these networks are meant for all the grades. They run parallel to each other. For example, one may use traditional distribution channels, and along with that, establish own sales centres at selected geographical regions.
Adequacy of the sales force in respect of size and skill is to be examined before entering into a new market or for operating in an existing market with greater emphasis or for offering a new product in the market. Number of sales persons should be neither more nor less. It should be just sufficient to implement the sales policy of the organization.
They need to be properly skilled and trained so that they can also undertake that non- sales activity. Other than merchandising function, sales person has to keep liaison with technical personnel, participate in value analysis programmes, collect market information and act as customers’ business advisory. They are the persons who link the benefits of the product to the needs of the buyers and carryout the vital strategic function.
According to some experts, starting point of an organization is money and the end point of that organization is money again. They are at least partially correct. No organization can run the existing business without cash in hand. Further, generation of additional fund can only promote a new expansion project.
Following is a list of some standard questions, which are to be examined by the financial planners for drawing the policy framework:
(i) From where do we propose to get additional funds to grow – internally or externally?
(ii) If the answer is internal source, will this affect the performance of the existing business?
(iii) If the answer to question (i) is external source, how do we propose to mobilize that additional fund?
(iv) What policy on capital structure do we propose to follow? Minimum debt or highly leveraged structure?
(v) How much liquid cash or current assets do we propose to keep in hand?
(vi) What will be the effect of growth on cash flow?
(vii) What accounting system and policy do we like to use?
(viii) What austerity measures are to be undertaken for generating more funds?
(ix) What financial measures are to be taken against loss making units?
(x) To whom we propose to sell the loss making units? And how?
While most of the questions are meaningful for growth or stable growth strategy, a few questions are related to turnaround and retrenchment strategies. Mainly, one is concerned with generation of resources, mobilization of resources, structuring of resources, allocation of resources and proper utilization of resources.
Sources of finance and capital structure are the important dimensions of financial policy. The external generation of fund may arise out of ownership capital and or borrowed capital. A Company may issue equity shares and or preference shares for mobilizing ownership capital. Preference shareholders, as the name stands, enjoy preferential rights in respect of dividend and return of capital. Holders of equity shares do not enjoy any such special right regarding dividend and return on capital.
There are different types of preference shares like cumulative convertible preference shares, which are convertible into equity shares between the end of the third year and the fifth year. Rate of dividend paid till conversion into equity shares remains constant. Debentures on the other hand, are issued to raise borrowed capital. These are of varying terms and conditions in respect of interest rate, conversion into shares and return of investment.
Public deposits, for a fixed time period, have become a major source of short and medium term finance. Organizations may offer higher rates of interest than banking institutions to attract investors and raise fund. The other sources of short-term finance are overdraft and cash credits, bill discounting, and bank loan and trade credit.
Along with the mobilization of funds, policy makers should decide on the capital structure to indicate the desired mix of equity capital and debt capital. There are some norms for debt – equity ratio. These are aimed at minimizing the risks of excessive loans. For public sector companies, the norm is 1:1 ratio and for private sector companies the norm is 2:1 ratio. For capital-intensive industries the proportion of debt to equity is much higher. Similar is the case for high cost projects in priority sectors, and projects in under developed regions.
Another important dimension of financial policy is investment and fund allocation decisions. A planner has to frame policies for regulating investments in fixed assets and for restraining of current assets.
Investment proposals, mooted by different business units, may be divided into three groups as indicated below:
(i) Proposal for addition of a product,
(ii) Proposal for increasing the level of operation of an existing product through increased capacity, and
(iii) Proposal for cost reduction and efficiency escalation.
Proposals are then evaluated by making within group comparison in the line of capital budgeting. Thus, project evaluation and project selection are the two most important jobs of fund allocation under resource constraints. The concept of Net Present Value and or Internal Rate of Return can be employed for the purpose of evaluation.
Dividend policy is another important area for making financial policy decision. It deals with the extent of earnings to be distributed as dividend to shareholders and the extent of earnings to be retained in the firm for future expansion of activities. From the point of view of long term funding of business expansion, dividend may be considered as that pan of total earnings, which cannot be profitably utilized by the firm.
Stability of the dividend payment is a desirable consideration that can have a positive impact on share price. The policy of paying a constant percentage of net earnings may be preferable from the point of view of flexibility and ability of the firm. Some companies follow a third alternative.
They pay a minimum dividend per share and additional dividend when earnings are higher than the normal earnings. In actual practice, reinvestment opportunities and financial needs of the firm and the shareholders’ preference for dividend income against capital gains resulting out of share prices are taken into consideration for arriving at the dividend policy. Alternatives like cash dividend and stock dividend are also examined and an optimum mix is struck out.
Successful implementation of corporate strategy requires a meticulously drawn personnel/ human resource policy. In fact, any weakness in personnel/ human resource policy may weaken the effectiveness of all the functional policies.
Major policy issues that draw the attention of the personnel planners are the followings:
(i) Recruitment of personnel,
(ii) Promotion and transfer practices,
(iii) Training and development of employees, and
(iv) Relationship with the employee unions.
Recruitment policy is one and the most important policy for the organization as a whole. There are two aspects of recruitment. One deals with the size of the workforce to ensure that the required size is being met. Quality is the other aspect. Quality of the workers, i.e., the skill and competence of the workers, need to be closely and thoroughly examined during the phases of recruitment and training.
According to Yoder (1972), recruitment policy is a two Q policy where Q1 stands for quantity of recruitment and Q2 stands for qualification of choice. Sources of recruitment vary from external sources to internal sources. The use of internal sources that is recruitment of persons already there in the payroll of the company may motivate the employees by offering a brighter future.
This may reduce the employee turnover, minimizing thereby the cost of recruitment and training. But a complete inbreeding is also not good for the company. Recruitment from external sources infuses new approaches, new ideas and new culture. As a result, striking a balance between these two sources is very much needed to enjoy the benefit of both these sources and to eliminate their respective limitations.
Promotion policy of an organization should be based on both seniority and merit and should develop the career paths in such a way that employees get motivated to remain in the organization. Exceptional performers should also be allowed to move up the hierarchical ladder at a faster rate.
In the context of strategic implementation, which may require structural change, the scopes of vertical promotion and horizontal transfer need to be very high. Under the leadership implementation, strategists are matched with strategies. In a similar way, during personnel policy-making employees are to be matched with both divisional strategies and functional strategies. A planned transfer can enrich the experiences of the employees and thereby increase their potentialities.
To bridge the gap between the existing performance level and the expected performance level and to induce higher skill, efficiency and knowledge, organizations draw plans for training and development of their employees. While training is a short- term process for increasing skills of employees with a prefixed purpose, development is a long drawn process through which employees make systematic improvement by acquiring knowledge and experiences for general purposes.
The policies on employees’ training and on management development have different objectives. Training being short-term process can benefit the strategic implementation programmes and there can be specific training programmes for specific strategies. But management development policy works across strategies and strengthens the general capability of the organization.
The union-management relationship is a vital factor that can influence not only the functional policies but also the business performances. If the bargaining power of the employees’ union increases the role of the management declines and the company’s internal environment becomes a politicized one.
It is also not desirable that the management adopts a hostile attitude towards the employees’ union. This results in mutual mistrust, increase in industrial disputes and reduction in efficiency. The ideal relationship is a straightforward business relationship with the union leaders and all should act based on maturity, rationality and solidarity.
Research and development policy and the logistic policy are the two other important policies that the functional planners should work out during the stage of strategic implementation.
Important issues for R & D are listed below:
(i) What new R & D projects are necessary to facilitate the growth of the company?
(ii) Should we assign some of these projects to outside groups?
(iii) How much money should be spent on R & D activities?
Regarding the logistics, crucial questions are the following:
(i) What should be the categorization of items consumed by the company during its operation? Should it be based on annual consumption value or technical importance or speed of movement?
(ii) What should be the ordering policy for the non-critical low cost items? What should be the ordering policy for the critical high value items? What should be the policy for in-between items?
(iii) What criterion should be followed by the company for vendor selection?
(iv) What should be the role of the company in vendor development?
Functional Strategy – In Different Functional Areas: Marketing, Finance, Operations and Human Resource
1. Functional Strategies in Marketing:
The marketing function plays a significant role of profitably bringing about the sale of products/services in target markets for the achievement of business’s goals. Functional strategies in the marketing area should guide this effort in a manner consistent with the basic strategy and other functional strategies.
Effective marketing strategies guide marketing managers in determining who will sell what, where, when, to whom, in what quantity, and how. Marketing strategies must therefore entail four components- products, price, place and promotion.
A marketing functional strategy for the product component should clearly identify the customer needs the firm seeks to serve with its product and/or service. An effective functional strategy for this component should guide marketing managers in taking decisions regarding features, product lines, packaging, accessories, warranty, quality, and new product development.
This strategy should facilitate a comprehensive statement of the product/service concept and the target market(s) the firm aims to serve. This, in turn, develops consistency and continuity in the day-to-day activities of the marketing area.
The functional strategy for the place component clarifies where, when, and by whom the product/services are to be offered for sale. The main concern here is the channel(s) of distribution that ensure consistency with the total marketing effort.
The promotion defines the manner in which the firm will communicate with the target market. Functional strategy for the promotion should provide basic guidelines for the appropriate use and mix of advertising, personal selling, sales promotion, and media selection. The promotion effort must be consistent with other marketing strategy components, and closely integrate with financial strategy
Functional strategy concerning the price component is perhaps the most important consideration in marketing. The Price functional strategy influences directly the demand and supply, profitability, consumer perception, and regulatory response. The approach to pricing strategy may be cost, market, or competition oriented. With the competition oriented approach, pricing decisions center around those of the firm’s competitors.
While with a cost-oriented approach, pricing decisions center on total cost and usually involve an acceptable markup or target price ranges. Pricing is based on consumer demand when the approach is market oriented. While one approach may predominate in a firm’s pricing strategy, the strategy is always influenced to some degree by the other orientations also.
2. Functional Strategies in Finance:
While most operating strategies guide implementation in the immediate future, for financial functional strategies the time frame varies because strategies in this area direct the use of financial resources in support of the business strategy, long-term goals, and annual objectives.
Financial operating strategies with longer time horizon provide guidelines to financial managers in long-term capital investment, use of debt financing, dividend allocation, and the firm’s leveraging posture. Operating strategies designed to manage working capital and short-term assets have a more immediate focus.
Long-term financial strategies usually guide capital acquisition in the sense that priorities change infrequently over time. The desired level of debt versus equity versus internal long-term financing of business activities is a common issue in capital acquisition strategy.
Another financial strategy of major importance is capital allocation. Growth- oriented grand strategies generally require numerous major investments in facilities, projects, acquisitions, and /or people. These investments cannot generally be made immediately, nor are they desired to be.
Rather, a capital allocation strategy sets priorities and timing for these investments. This also helps manage conflicting priorities among operating managers competing for capital resources.
Stability or retrenchment generic strategy often requires a financial strategy that focuses on the reallocation of existing capital resources. This may require pruning product lines, production facilities, or personnel to be reallocated elsewhere in the firm. The overlapping careers and aspirations of key operating managers develop an emotional setting.
3. Functional Strategies in Operations:
Operations management is the core function in the business firm. It is the process of converting inputs into value-added output. This function is most easily associated with manufacturing firms. However, it applies equally to all other types of businesses including service and retail firms.
Operations functional strategies must guide decisions concerning the basic nature of the firm’s operations system, seeking an optimum balance between investment input and operations, output and location, facilities design and process planning on a short-term basis.
The facilities and equipment component of operations strategy involves decisions regarding plant location, size, equipment replacement, and facilities utilization that should be consistent with grand strategy and other operating strategies.
The purchasing function is another area to be addressed in the operations functional strategy that answer questions relating to the number of suppliers, the criteria to be used in selecting vendors, the purchases made in terms of volume and delivery requirements to support operations. If such answers are critical to the success of a grand strategy, functional strategy guidelines improve implementation.
Operations functional strategies provide guidelines for ongoing operations and encourage efficient organization of operational resources to match long-range overall demand. Often this component dictates whether operations will be demand oriented, inventory oriented, or subcontracting oriented.
If demand is cyclical or seasonal, the operations strategy must ensure that operations processes are efficiently geared to this pattern. If demand is less cyclical, a firm might emphasize producing to inventory, desiring a steady level of production and inventories. When demand fluctuations are less predictable, many firms subcontract to handle sudden variations in demand while avoiding idle capacity and excess capital investment.
Thus an operations strategy should guide in decisions relating to the appropriate inventory level, purchasing procedure, and level of quality control, trade-off in emphasizing cost versus quality in operations, the critical level of productivity, the production schedule and the criteria followed in adding or deleting equipment, facilities, shifts, and people.
Operations functional strategies must be coordinated with marketing strategy if the firm is to succeed. Careful integration with financial strategy components such as capital budgeting and investment decisions and the personnel function are also necessary.
4. Functional Strategies in Human Resource:
Organizations have responded with different strategic measures to adapt to the changing external environment. Now it is widely accepted that integration of HR strategy with business strategy is significant for organizational success. HR strategy that is embedded in business strategy of the organization not only serves to achieve the organizational objectives but also grows up as a key resource for competitive advantage.
Fundamental changes in the business environment have created a sudden shift in focus of HR function.
These changes include:
a. Rapid rate of business change resulting high uncertainty
b. Raising costs, increasing competitive pressures and margins
c. Rapid technological change: increasing demands for new skills through resourcing, education and retraining.
d. Flatter, leaner and more flexible organizations
e. Changing demographics, limited labor availability
f. Responding to external forces: legislation and regulation, litigation, union relations and union avoidance etc.
g. Increasing multinational competition and collaboration, multilateral relationship