Strategy Implementation: Functional Strategy and Strategic Choice

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Strategy Implementation Functional Strategy and
Strategic Choice

• Outsourcing
• Withdrawing from certain stages/activities in the
  value chain systems and relying on outside
  vendors to supply needed products, support
  services, and functional activities.

2
Strategy Implementation Functional Strategy and
Strategic Choice

• Outsourcing makes strategic sense when
• An activity can be performed better or more
  cheaply by outside specialists (e.g., outside
  assembly of PCs due to sizable economies of scale
  in purchasing components in large volumes and in
  the assembly process).
• The activity is not crucial to the firms ability
  to achieve sustainable competitive advantage and
  wont hollow out its core competencies. (e.g.,
  outsourcing of maintenance services, data
  processing, accounting).

3
Strategy Implementation Functional Strategy and
Strategic Choice

• Outsourcing makes strategic sense when
• It reduces the companys risk exposure to
  changing technology and/or changing buyer
  preferences.
• It streamlines company operations in ways that
  improve organizational flexibility, cut cycle
  time, speed decision-making, and reduce
  coordination costs.
• It allows a company to concentrate on its core
  business and do what it does best.

4
Strategy Implementation Functional Strategy and
Strategic Choice

• Dell Computers partnerships with suppliers of PC
  components have allowed it to
• operate with fewer than 7 days of inventory
• save substantial savings in inventory costs
• get PCs equipped with next-generation components
  into the marketplace in less than a week after
  the newly upgraded components start shipping.

5
Strategy Implementation Functional Strategy and
Strategic Choice

• Advantages of Outsourcing
• Obtaining higher quality and/or cheaper
  components or services than internal sources can
  provide
• Improving the companys ability to innovate by
  interacting and allying with best-in-world
  suppliers who have considerable intellectual
  depth and innovative capabilities of their own.

6
Strategy Implementation Functional Strategy and
Strategic Choice

• Advantages of Outsourcing
• Enhancing the firms strategic flexibility should
  customer needs and market conditions suddenly
  shift--seeking out new suppliers with the needed
  capabilities already in place is frequently
  quicker, easier, less risky, and cheaper than
  hurriedly retooling internal operations.
• Increasing the firms ability to assemble diverse
  kinds of expertise speedily and efficiently.

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Strategy Implementation Functional Strategy and
Strategic Choice

• Pitfalls of Outsourcing
• Firm may farm out too many or the wrong types of
  activities and hollow out its own capabilities.
• Cisco guards against loss of control and protects
  its manufacturing expertise by designing the
  production methods that its contract
  manufacturers must use. Cisco also uses the
  Internet to monitor the factory operations around
  the clock.

8
Strategy Implementation Functional Strategy and
Strategic Choice

• Marketing Issues
• Use exclusive dealerships or multiple channels of
  distribution
• Use heavy, light, or no TV advertising
• Limit (or not) the share of business done with a
  single customer
• Be a price leader or price follower
• Offer a complete or limited warranty
• Reward salespeople based on straight salary,
  straight commission, or a combination of the two
• To advertise on online or not.

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Strategy Implementation Functional Strategy and
Strategic Choice
Marketing Issues Ansoff Matrix of Marketing
Strategies
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Strategy Implementation Functional Strategy and
Strategic Choice

• Marketing Issues
• Extending Product Life Cycles
• 1. Promoting more frequent usage of the product
  by current customers.
• 2. Finding new target markets for the product.
• 3. Finding new uses for the product.

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Strategy Implementation Functional Strategy and
Strategic Choice

• Marketing Issues
• Extending Product Life Cycles
• 4. Pricing below the market.
• 5. Developing new channels.
• 6. Adding new ingredients and/or deleting old
  ingredients.
• 7. Making a dramatic new guarantee.

12
Strategy Implementation Functional Strategy and
Strategic Choice

• Research and Development Issues
• Emphasize product or process improvements
• Stress basic or applied research
• Be leaders or followers in RD
• Develop robotics or manual-type processes
• Spend a high, average, or low amount on RD
• Perform RD within the firm or contract RD to
  outside firm
• Use university researchers or private sector
  researchers

13
Strategy Implementation Functional Strategy and
Strategic Choice

• Research and Development Issues
• First-mover advantages
• pioneering helps build a firms image and
  reputation with buyers
• early commitments to new technologies, new-style
  components, distribution channels, etc. can
  create an absolute cost advantages

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Strategy Implementation Functional Strategy and
Strategic Choice

• Research and Development Issues
• First-mover advantages
• First-time customers remain loyal by making
  repeat purchases.
• Preemptive strikes are hard to imitate.

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Strategy Implementation Functional Strategy and
Strategic Choice

• Research and Development Issues
• Follower Advantages
• Pioneering leadership is more costly, only small
  experience curve benefits may accrue to first
  mover
• First mover products may not sufficiently meet
  buyer expectations, permitting follower to win
  buyers with better performing products.

16
Strategy Implementation Functional Strategy and
Strategic Choice

• Research and Development Issues
• Follower Advantages
• Rapid advance of technology permits fast
  followers to leapfrog first movers products with
  full-featured 2nd and 3rd generation products.

17
Strategy Implementation Functional Strategy and
Strategic Choice

• Finance/Accounting Issues
• Raise capital with short-term debt, long-term
  debt, preferred stock, or common stock
• Lease or buy fixed assets
• Determine appropriate dividend payout ratio
• Use LIFO, FIFO, or a market-value accounting
  approach
• Extend the time of accounts receivable
• Establish a certain percentage discount on
  accounts within a specified period of time
• Determine amount of cash that should be kept on
  hand.

18
Strategy Implementation Functional Strategy and
Strategic Choice

• Management of Information Issues
• Information collection, retrieval and storage to
• Cross-sell to customers
• Monitor suppliers
• Keep managers and employees informed
• Coordinating activities across divisions
• Managing funds