SM CH 6 Functional Level Strategies

CHAPTER 6
FUNCTIONAL LEVEL
STRATEGIES
LEARNING OUTCOMES
After studying this chapter, you will be able to -

 Identify the various functional areas of business for strategy
formulation.
 Analyse the elements of marketing, financial, production, R
& D and human resource strategies.
 Explain the strategic importance of supply chain
management.
 Highlight the strategic role of the various functional
strategies.
Most of the time, strategists should not be formulating strategy at all;

they should be getting on with implementing strategies they already
have.
Henry Mintzberg
© The Institute of Chartered Accountants of India

6.2 STRATEGIC MANAGEMENT
CHAPTER OVERVIEW
Marketing
Strategy
Human
Financial
Resource
Strategy
Strategy
Functional
Strategy
Research and
Production
Development
Strategy
Strategy
Logistics
Strategy
6.1 INTRODUCTION
 Once higher level corporate and business strategies have been developed,
management must formulate and implement strategy for each of the
functional areas of business.
 Strategy of one functional area cannot be looked at in isolation. Different
functional areas of the business are interwoven together and how a functional
strategy is synergised with other functional strategies determines its
effectiveness.
 Functional strategies are designed to help in the implementation of
corporate and business unit level strategies.
 For effective implementation, the strategists have to provide direction to
the functional managers regarding the plans and policies to be adopted. In
fact, the effectiveness of strategic management depends critically on the
manner in which strategies are implemented.
 Functional strategies provide details to business strategy and govern as to
FUNCTIONAL LEVEL STRATEGIES 6.3
how key activities of the business are to be managed.

 Functional strategies play two important roles. Firstly, they provide support to
the overall business strategy. Secondly, they spell out as to how functional
managers will work so as to ensure better performance in their respective
functional areas.
 Strategies in functional areas including marketing, financial, production, R
& D and human resource management are based on the functional
capabilities of an organisation.
 For each functional area, first the major sub areas are identified and then for
each of these sub areas, content of functional strategies, important factors,
and their importance in the process of strategy implementation are
identified.
 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 framework of corporate level

strategies and guidelines therein that are set at higher levels of the
organization. Operational plans at the SBU level tell the functional
managers what has to be done while policies state how the plans are to be
implemented.
Need for Functional Strategies:
The reasons why functional strategies are needed can be enumerated as follows:
What is the need for functional strategies?

 Functional strategies lay down clearly what is to be done at the functional
level. They provide a sense of direction to the functional staff.
 They are aimed at facilitating the implementation of corporate strategies

and the business strategies formulation at the business level.
 They act as basis for controlling activities in the different functional areas of
business.
 They help in bringing harmony and coordination as they are formulated to
achieve major strategies.
 These strategies help the functional managers in handling similar situations
occurring in different functional areas in a consistent manner.
Thus, top level strategies need to be segregated into viable functional plans and
policies that are compatible with each other. In this way, strategies can be
implemented by the functional managers.
Environmental factors relevant to each functional and the corporate strategies
influence the formulation of functional strategies.

6.2 MARKETING STRATEGY

Marketing is a social and managerial process by which individuals and groups obtain
what they need and want through creating, offering and exchanging products of value
with others. Philip Kotler and Gary Armstrom
 Marketing is an activity performed by all business organizations. It is an

activity that creates and sustains exchange relationships among those who
are willing and able to buy and sell products,
 services, satisfaction and even ideas. In the present day business, marketing
encompasses all the activities related to identifying the needs of customers
and
 taking such actions to satisfy them in return of some consideration. In
marketing it is more important to do what is strategically right than
what is immediately profitable.
 The term marketing constitutes different processes, functions, exchanges and
activities that create perceived value by satisfying needs of individuals.
Marketing induces or helps in moving people closer to making a decision to
purchase and facilitate a sale.
 Marketing in recent decades has gained a lot of importance because of a
number of factors. Rapid economic growth, globalization, technological
upgradation, ever-increasing human needs and wants and increasing
purchasing power of people are some of the factors which have made
marketing as a central activity for every business.
 A business organization faces countless marketing challenges that affect
the success or failure of strategy implementation.
Some examples of marketing decisions that may require special attention
are as follows:
What are some examples of marketing decisions?
1. The amount and the extent of advertising to be done. Whether to use heavy
or light advertising. What should be the amount of advertising in print
media, television or internet? Eg. Big Bazar or Apple.
2. Decisions regarding distribution network to be used. Whether to use
exclusive dealerships or multiple channels of distribution
. Onepulse only on Flipkart or on amazon also.

3. Whether to be a price leader or a price follower? (Apple or Vivo/Oppo.
4. Whether to offer a complete or limited warranty?
5. Whether to limit or enhance the share of business done with a single or a
few customers?

6. Whether to reward sales people based on straight salary, straight

commission, or on a combination of salary and commission?
Marketing
 The marketing process is the process of analyzing market opportunities,
selecting target markets, developing the marketing mix, and managing the
marketing effort.
 Target customers stand at the centre of the marketing process. Once the
corporate strategy has defined the company’s overall mission and objectives,
 marketing plays a role in carrying out these objectives by undertaking the
following:
What are 2 Obj. Of marketing?
 Delivering Value to Customers: Marketing alone cannot produce superior
value for the customers. It needs to work in coordination with other
departments to accomplish this.
 Marketing acts as part of the organizational chain of activities. Marketers are
challenged to find ways to get all the departments to think with focus on
customer.
 In its search for competitive advantage, the firm needs to look beyond its own
chain of activities and into the chains of its suppliers, distributors, and
ultimately customers. This “partnering” will produce a value delivery network.
Figure 6.1: Value Delivery Network
 Connecting with customers: To succeed in today’s competitive marketplace,

companies must be customer centric.
 They must win customers from competitors and keep them by

delivering greater value.
 Since companies cannot satisfy all customers in a given market, they

must divide up the total market (market segmentation), choose the
best segments (marketing target), and design strategies for profitably
serving chosen segments better than the competitors (market
positioning).
 Eg. Cred marketing.

Marketing Mix
 To understand marketing strategy, we need to understand the underlying
concepts. Marketing-mix being one of them. Marketing mix forms an
important part of overall competitive marketing strategy.
 The marketing mix is the set of controllable marketing variables that the firm
blends to produce the response it wants in the target market.
 The marketing mix consists of everything that the firm can do to influence
the demand for its product. These variables are often referred to as the “4
Ps.”
 The 4 Ps stand for product, price, place and promotion. An effective
marketing program blends all of the marketing mix elements into a
coordinated program designed to achieve the company’s marketing
objectives by delivering value to the consumers.
 The 4 Ps are from a marketer’s angle. These four Ps correspond to 4 Cs
when perceived from customers’ perspective and are referred to as Product-
customer solution, price-customer cost, place-convenience and promotion-
communication.
(i) Product stands for the combination of “goods-and-services” that the
company offers to the target market.
HUL=LUX,CloseUp,Nescafe.
□ Strategies are needed for managing existing product over time,
adding new ones and dropping failed products. Strategic decisions
must also be made regarding branding, packaging and other
product features such as warranties.
□ The products can also be classified on the basis of industrial or
consumer products, essentials or luxury products, durables or
perishables.
□ There are products that have wide range of quality and workmanship
and these also change over time since products and markets are
infinitely dynamic.
□ An organization has to capture such dynamics through a set of policies
and strategies.
Some products have consistent customer demand over long
period of time while others have short life spans. (Parle G , Nano)
 Products can also be differentiated on the basis of size, shape, colour,
packaging, brand names, after-sales service and so on.
 Organizations seek to hammer into customers’ minds that their
products are different from others. It does not matter whether the
differentiation is real or imaginary.
 Quite often the differentiation is psychological rather than physical. It is
enough if customers are persuaded to believe that the marketer’s
product is different from others. Mama earth. FOGG.,
 Organizations formalize product differentiation through designating
‘brand names’ to their respective products.
 These are generally reinforced with legal sanction and protection.
Brands enable customers to identify the product and the
organization behind it.
 The products’ and even firms’ image is built around brands through
advertising and other promotional strategies. Customers tend to
develop strong brand loyalty for a particular product over a period of
time.

(ii) Price stands for the amount of money customers have to pay to obtain the
product.
 Necessary strategies pertain to the location of the customers, price
flexibility, related items within a product line and terms of sale. The
price of a product is its composite expression of its value and utility
to the customer, its demand, quality, reliability, safety, the competition
it faces, the desired profit and so on.
 There are many types pf pricing strategies available for a marketer
choose for pricing the product depending on various factors.
 Therefore, in an industry there would be organizations with low cost
products and other organizations with high costs.
 The low cost organizations may adopt aggressive pricing strategy as
they enjoy more freedom of action in respect of their prices.
 They may also afford selective decrease in price to push their sales.
Theoretically, organizations may also adopt cost plus pricing
wherein a margin is added to the cost of the product to determine
its price.
 However, in the competitive environment such an approach may not
be feasible. More and more companies of today have to accept the
market price with minor deviations while fixing the prices of their
products. They reduce their cost in order to maintain their profitability.
 For a new product, pricing strategies for entering a market need to be
designed and for that matter at least three objectives must be kept in
mind:
What are 3 OBJ. To be kept in mind while pricing new product?
 Have customer-centric approach while making a product.
 Produce sufficient returns through a reasonable margin over cost.
 Increasing market share.
 For that matter, for a new product, there are two strategies available
to an organization either choose to skim or penetrate the market.
 In skimming pricing policy, prices are set at a very high level. The
product is directed to those buyers who are relatively price insensitive
but sensitive to the novelty of the new product. Apple.
 For example, call rates of mobile telephones were set very high
initially. Since the initial off take of the product is low, high price, in
a way, helps in rationing of supply in favour of those who can afford it.
 In penetration firm keeps a temptingly low price for a new product
which in itself is a selling point.
A very large number of the potential consumer may be able to afford
and willing to try the product. The pricing kept by Reliance Jio is
penetration.

(iii) Place stands for company activities that make the product available to target
consumers.
 One of the most basic marketing decision is choosing the most
appropriate marketing channel.
 Strategies should be taken for the management of channel(s) by which
ownership of product is transferred from producers to customers and in
many cases, the system(s) by which goods are moved from where they
are produced from they are purchased by the final customers.
 Strategies applicable to the intermediaries such as wholesalers and
retailers must be designed.
 The distribution policies of a company are important determinants of the
functions of marketing.
 The decision to utilize a particular marketing channel or channels sets the
pattern of operations of sales force. We will learn more about place
when we study logistics later in this chapter.
 Eg. Parle G, Balaji, Bajaj, Pathan releasing on 8000 screens.
(iv) Promotion stands for activities that help in communicating the necessary messages
about a product through campaigns and persuade target consumers to buy it.
 Strategies are needed to combine individual methods such as advertising,
personal selling, and sales promotion into a coordinated campaign.
 In addition promotional strategies must be adjusted as a product move
from an earlier stage from a later stage of its life, besides many other
factors like, nature of product, type of target audience, resourcefulness,
type of market, organisation’s policy and so forth.
 Modern marketing is highly promotional oriented. Organizations strive to
push their sales and market standing on a sustained basis and in a
profitable manner under conditions of complex direct and indirect
competitive situations.
 Promotion gives an impetus to marketing and sales. It involves
communication, persuasion and conditioning process. There are at least
four major direct promotional methods or tools – personal selling,
advertising, publicity and sales promotion. They are briefly explained as
follows:

What are 4 major direct promotional methods? (PAP KO SALE)
(i) Personal selling: Personal selling is one of the oldest forms of
promotion. It involves face-to-face interaction of sales force with the
prospective customers and provides a high degree of personal
attention to them.
Eg. Insurance agent, Car sale, Saree show room.
 In personal selling, oral communication is made with potential
buyers of a product with the intention of making a sale.
 It may initially focus on developing a relationship with the
potential buyer, but end up with a sale.
 Personal selling suffers from a very high costs as sales
personnel are expensive.
 They can physically attend only one customer at a time. Thus it is
not a cost-effective way of reaching a large number of people.
 However, as it is a highly effective method to persuade a
potential customer into making a purchase, the personal selling is
used in all kind of industries for all products.

(ii) Advertising: Advertising is a non-personal, highly flexible and

dynamic promotional method. (Paid)
 The media for advertising includes pamphlets, brochures,
newspapers, magazines, hoardings, display boards, radio,
television and internet.
 Choice of appropriate media is important for effectiveness of the
message. The media may be local, regional, or national.
 The type of the message, copy, and illustration are a matter
of choice and creativity. Advertising may be directed towards
consumers, middlemen or opinion leaders.
 Advertising is likely to succeed in promoting the sales of an
organization but its effectiveness in respect to the expenditure
cannot be directly measured. A sale is a function of several
variables out of which advertising is only one.
(iii) Publicity: Publicity is also a non-personal form of promotion similar
to advertising. (UNPAID)
 However, no payments are made to the media as in case of
advertising. Organizations skillfully seek to promote
themselves and their products without payment.
 Publicity is communication of a product, brand or business by
placing information about it in the media without paying for the
time or media space directly.
 Thus, it is way of reaching customers with negligible cost.
Basic tools for publicity are press releases, press conferences,
reports, stories, and internet releases. These releases must be of
interest to the public.
(iv) Sales promotion: Sales promotion includes all activities that are
undertaken to promote the business but are not specifically included
under personal selling, advertising or publicity.
 Activities like discounts, offers, contests, money refunds,
instalments, kiosks, exhibitions and fairs constitute sales
promotion.
 All these are meant to give a boost to the sales for a short term.
Sales promotion done periodically may help in getting a larger
market share to an organization.

Expanded Marketing Mix: Typically, all organizations use a combination of 4 Ps
in some form or the other.
 However, the above elements of marketing mix are not exhaustive. It is
pertinent to discuss a few more elements that may form part of an
organizational marketing mix strategy.
 With the growth of services sector, newer Ps specifically based on the
characteristics of the services have been included.

 People: It includes all human actors who play a part in delivery of the
product/service and thus influence the buyer’s perception about the service
delivered. (Actor, Doctor, mutual fund manager, Jockey)
 Process: the actual procedures, mechanisms and flow of activities by which
the product / service is delivered. (Subway, Turkish Ice cream)
 Physical evidence: the environment/ambience in which the market offering
is delivered and where the firm and customer interact. (Starbucks, Maldives)
Prerequisite for formulation of Marketing Strategy
What are points in formulating marketing Strategy?
Environmental analysis and diagnosis: Before making any strategy, it is
imperative for a marketer to understand the environment in which the
organisation is operating.
 He should undertake a complete analysis and diagnosis of both micro and
macro environment.
 To interpret in a better way, he can do the SWOT analysis and comprehend
where the organisation is positioned and where it wants to go and how will
it go.
 It involves a complete analysis of the company’s situation. A company
performs analysis by identifying environmental opportunities and threats.
 It also analyses its strengths and weaknesses to determine which
opportunities the company can best pursue.
 Marketing has three components as planning, implementation and control.
Through these analyses, organizations gather information and other inputs
that can be best utilised for its interest while framing a marketing strategy.
For that matter, a company must carefully analyze its environment in order to
avoid the threats and take advantage of the opportunities.
Areas to be analyzed in the environment normally include:
1. Forces close to the company known as micro environment such as its ability
to serve customers, other company departments, channel members,
suppliers, competitors, and publics.
2. Broader forces (macro environment) such as demographic and economic forces,
political and legal forces, technological and ecological forces, and social and
cultural forces.

Figure: Strategic marketing management process

 After completing the environmental analysis and diagnosis, the organisation
can start strategic marketing planning that involves deciding on marketing
strategies that will help the company attain its overall strategic objectives.
 A detailed plan is needed for each business, product, or brand. A product

or brand plan may contain different sections: executive summary, current
marketing situation, threats and opportunity analysis, objectives and issues,
marketing strategies, action programs, budgets, and controls.
 The executive summary is a short summary of the main goals and
recommendations to be presented in the plan.
 The current marketing situation is the section of a marketing plan that
describes the target market and the company’s position in it. Important
sections include:
 A market description.
 A product review.
 Analysis of the competition.
 A section on distribution.
 In the threats and opportunities section, managers give their assessment of
important developments that can have an impact, either positive or
negative, on the firm.
 Having studied the product’s threats and opportunities, the manager can
set objectives and consider issues that will affect them. The objectives
should be stated as goals that the company would like to attain during the
plan’s term.

 Marketing strategy is the marketing logic by which the business unit hopes
to achieve its marketing objectives. Strategies should be formulated for all
marketing mix components.
 Lastly, strategic control involves monitoring and measuring of results and
their evaluation. This would lead to taking corrective actions in the
marketing plan/strategy.
Strategic Marketing Techniques (MCQ)
Over the years, a number of marketing strategies have been evolved, which are
given to handle marketing strategically and fight the competition in the market.
 Social Marketing: It refers to the design, implementation, and control of
programs seeking to increase the acceptability of a social ideas, cause, or
practice among a target group to bring in a social change.
For instance, the publicity campaign for prohibition of smoking in Delhi
explained the place where one can and can’t smoke and also indicates that
smoking is injurious to health.
All out #tough moms AD.
 Augmented Marketing: This type of marketing includes additional customer
services and benefits that a product can offer besides the core and actual
product that is being offered. (Imp)
It can be in the form of introduction of hi-tech services like movies on demand,
online computer repair services, secretarial services, etc. Such innovative
offerings provide a set of benefits that promise to elevate customer service to
unprecedented levels.
Eg. Rooftop Car, Tata sky Recording.
 Direct Marketing: Marketing through various advertising media that
interact directly with consumers, generally calling for the consumer to make
a direct response.
Direct marketing includes catalogue selling, e-mail, telecomputing, electronic
marketing, shopping, and TV shopping. Calling.
 Relationship Marketing: The process of creating, maintaining, and
enhancing strong, value-laden relationships with customers and other
stakeholders.
For example, Airlines offer special lounges at major airports for frequent
flyers. Thus, providing special benefits to select customers to strengthen bonds.
It can go a long way in building relationships. Loyalty cards. (IMP)
 Services Marketing: It is applying the concepts, tools, and techniques, of
marketing to services.
Services is any activity or benefit that one party can offer to another that is
essentially intangible.
This marketing requires different marketing strategies since it has peculiar
characterisics of its own such as inseperability, variability etc.
Petrol pump= Free air.

 Person Marketing: People can also be marketed. Person marketing consists of

activities undertaken to create, maintain or change attitudes and behaviour
towards particular person. Narendra Modi, Sanju.
For example, politicians, sports stars, film stars, etc. i.e., market themselves to
get votes, or to promote their careers.
 Organization Marketing: It consists of activities undertaken to create,
maintain, or change attitudes and behaviour of target audiences towards an
organization. Both profit and non-profit organizations practice organization
marketing. Being Human.
 Place Marketing: Place marketing involves activities undertaken to create,
maintain, or change attitudes and behaviour towards particular places say,
marketing of business sites , tourism marketing. Gujrat= Big B, Dubai= SRK.
 Enlightened Marketing: It is a marketing philosophy holding that a company’s
marketing should support the best long-run performance of the marketing
system that is beyond the prevailing mindset; (IMP)
its five principles include (VICS)
customer-oriented marketing, innovative marketing, value marketing, sense-of-
mission marketing, and societal marketing. Tata.
 Differential Marketing: It is a market-coverage strategy in which a firm
decides to target several market segments and designs separate offer for each.
Imp.
For example, Hindustan Unilever Limited has Lifebuoy, Lux and Rexona in
popular segment and Dove and Pears in premium segment.
 Synchro-marketing: When the demand for a product is irregular due to
season, some parts of the day, or on hour basis, causing idle capacity or
overworked capacities,
synchro-marketing can be used to find ways to alter the pattern of demand
through flexible pricing, promotion, and other incentives. Imp.
For example, products such as movie tickets can be sold at lower price over
week days to generate demand. Flight tickets, OYO rooms.
 Concentrated Marketing: It is a market-coverage strategy in which a firm
goes after a large share of one or few sub-markets. It can also take the form
of Niche marketing. Patanjali Dantkanti
 Demarketing: It includes marketing strategies to reduce demand
temporarily or permanently.
The aim is not to destroy demand, but only to reduce or shift it. This happens
when there is overfull demand.
For example, buses are overloaded in the morning and evening, roads are
busy for most of times, zoological parks are over-crowded on Saturdays,
Sundays and holidays. Here demarketing can be applied to regulate
demand.

6.3 FINANCIAL STRATEGY

 The next important functional strategy relates to financial aspects of the
business and are termed as financial strategies.
 The financial strategies of an organization are related to several areas of
financial management considered central to strategy implementation.
 These include: acquiring needed capital/sources of fund,
developing projected financial statements/budgets,
management/ usage of funds, and
evaluating the worth of a business.
 Strategists need to formulate strategies in these areas so that they are
implemented.
 Some examples of decisions that may require financial and accounting
policies are:
What are imp fin. Decision taken by Fin. Manager ?
1. To raise capital with short-term debt, long-term debt, preferred stock, or
common stock.
2. To lease or buy fixed assets.
3. To determine an appropriate dividend payout ratio.
4. To extend the time of accounts receivables.
5. To establish a certain percentage discount on accounts within a specified
period of time.
6. To determine the amount of cash that should be kept on hand.
6.3.1 The major components of financial strategy are:
a. Strategising acquiring capital (sources of funds): Successful strategy
implementation often requires additional capital.
 Besides net profit from operations and the sale of assets, two basic sources
of capital for an organization are debt and equity.
 Determining an appropriate mix of debt and equity in a firm’s capital
structure can be vital to successful strategy implementation.
 Theoretically, an enterprise should have enough debt in its capital structure
to boost its return on investment by applying debt to products and projects

earning more than the cost of the debt.
 In low earning periods, too much debt in the capital structure of an
organization can endanger stockholders’ return and jeopardize company
survival.
 Many debt ridden real estate companies find things very difficult at time of
recession. Fixed debt obligations generally must be met, regardless of
circumstances.
 This does not mean that stock issuances are always better than debt for raising
capital.
 Some special stock is issued to finance strategy implementation leading to
ownership and control of the enterprise are diluted. This can be a serious
concern in today’s business environment of hostile takeovers, mergers, and
acquisitions.

 The major factors regarding which strategies have to be made includes capital
structure; procurement of capital and working capital borrowings; reserves
and surplus as sources of funds; and relationship with lenders, banks and
financial institutions.
 Strategies related to the sources of funds are important since they determine
how financial resources will be made available for the implementation of
strategies.
 Organizations have a range of alternatives regarding the sources of funds.
While one company may rely on external borrowings, another may follow a
policy of internal financing.
b. Projected financial statements/budgets as an effective tool to
implement financial strategy: Projected (pro forma) financial statement analysis
is a central strategy-implementation technique because it allows an organization
to examine the expected results of various actions and approaches.
 This type of analysis can be used to forecast the impact of various
implementation decisions (for example, to increase promotion expenditures
by 50 percent to support a market-development strategy, to increase salaries
by 25 percent to support a market-penetration strategy, to increase research
and development expenditures by 70 percent to support product
development, or to sell common stock to raise capital for diversification).
 Nearly all financial institutions require a projected financial statement
whenever a business seeks capital. A pro forma income statement and
balance sheet allow an organization to compute projected financial ratios
under various strategy-implementation scenarios.
 When compared to prior years and to industry averages, financial ratios
provide valuable insights into the feasibility of various strategy-
implementation approaches.
 As a result of the governance challenges, companies today are being much
more diligent in preparing projected financial statements in a reasonable
manner rather than too optimistically.
 A financial budget is also a document that details how funds will be obtained
and spent for a specified period of time.
 Annual budgets are most common, although the period of time for a
budget can range from one day to more than ten years.
 Fundamentally, financial budgeting is a method for specifying what must be
done to complete strategy implementation successfully. Financial budgeting
should not be thought of as a tool for limiting expenditures but rather as a
method for obtaining the most productive and profitable use of an
organization’s resources. Financial budgets can be viewed as the planned
allocation of a firm’s resources based on forecasts of the future.
 There are several types of financial budgets used by different organizations.
Some common types of budgets include
cash budgets, operating budgets, sales budgets, profit budgets, factory
budgets, capital budgets, expense budgets, divisional budgets, variable
budgets, flexible budgets, and fixed budgets.
When an organization is experiencing financial difficulties, budgets are
especially important in guiding strategy implementation.
 Financial budgets have some limitations also. First, budgetary

programs can become so detailed that they are cumbersome and
overly expensive.
 Over budgeting or under budgeting can cause problems. Second, financial
budgets can become a substitute for objectives. A budget is a tool and not
an end in itself.
 Third, budgets can hide inefficiencies if based solely on precedent rather than
on periodic evaluation of circumstances and standards.
 Finally, budgets are sometimes used as instruments of tyranny that result in
frustration, resentment, absenteeism, and high turnover. To minimize the
effect of this last concern, managers should increase the participation of
subordinates in preparing budgets.

c. Strategising utilization/management of funds: Plans and policies for the

usage of funds deal with investment or asset-mix decisions.
 The important factors regarding which plans and policies are to be made
are: capital investment; fixed asset acquisition; current assets; loans and
advances; dividend decisions; and relationship with shareholders.
 Usage of funds is important since it relates to the efficiency and effectiveness
of resource utilization in the process of strategy implementation.
 Implementation of projects in pursuance of expansion strategies typically
results in increase in capital work in progress and current assets. If plans
and policies are not clear, the usage of funds would be inefficient, leading
to less than an optimum utilization of resources.
 The management of funds is another important area of financial strategies. It
basically deals with decisions related to the systemic aspects of financial
management.
 The major factors regarding which plans and policies related to the
management of funds have to be made are: the systems of finance,
accounting, and budgeting; management control system; cash, credit, and
risk management; cost control and reduction; and tax planning and
advantages.
 The management of funds can play a pivotal role in strategy implementation
as it aims at the conservation and optimum utilization of funds objectives
which are central to any strategic action.
 Organizations that implement strategies of stability, growth or
retrenchment cannot escape the rigours of a proper management of funds.
 In fact, good management of funds often creates the difference between a
strategically successful and unsuccessful company. For instance, Gujarat
Ambuja Cements, currently a highly profitable cement company in the
country, has achieved tremendous financial success primarily on the basis
of its policies of cost control. This company has been particularly successful in
maintaining a low cost for power, which is a major input in cement
manufacturing.
 Financial plans and policies, however, present a dilemma before
management. The priorities of management may often conflict with those
of shareholders. It is the responsibility of the strategists to minimize the
conflict of interest between the management and the shareholders.

d. Evaluating the worth of a business: (imp)

Evaluating the worth of a business is central to strategy implementation because
integrative, intensive, and diversification strategies are often implemented by
acquiring other firms.
 Other strategies, such as retrenchment may result in the sale of a division of a
firm itself. Thousands of transactions occur each year in which businesses
are bought or sold.
 In all these cases, it is necessary to establish the financial worth or cash
value of a business to successfully implement strategies.
What are 3 approaches for finding net worth of a Buz.? Imp
Various approaches for determining a business’s worth can be grouped into three
main approaches:
 The first approach in evaluating the worth of a business is determining its
net worth or stockholders’ equity.
Net worth represents the sum of common stock, additional paid-in capital, and
retained earnings.
After calculating net worth, add or subtract an appropriate amount for
goodwill and overvalued or undervalued assets. This total provides a
reasonable estimate of a firm’s monetary value.
 The second approach to measuring the value of a firm grows out of the
belief that the worth of any business should be based largely on the future
benefits its owners may derive through net profits.
A conservative rule of thumb is to establish a business’s worth as five times
the firm’s current annual profit. A five-year average profit level could also be
used.
 The third approach, letting the market determine a business’s worth,
involves three methods.
First, base the firm’s worth on the selling price of a similar company. A
potential problem, however, is that sometimes comparable figures are not
easy to locate.
The second approach is called the price-earnings ratio method. To use this
method, divide the market price of the firm’s common stock by the annual
earnings per share and multiply this number by the firm’s average net
income for the past five years.

The third approach can be called the outstanding shares method. To use
this method, simply multiply the number of shares outstanding by the
market price per share and add a premium.
The premium is simply a per- share amount that a person or firm is willing
to pay to control (acquire) the other company.

6.4 PRODUCTION/OPERATIONS STRATEGY

 The production/operations strategy is related to the production system,
operational planning and control and logistics management.
 It affects the nature of product/service, the markets to be served, and the
manner in which the markets are to be served.
 All these collectively influence the operations system structure and
objectives which are used to determine the operational plans and policies.
 Thus, a strategy of expansion through related diversification, for instance,
will affect what products are offered to which market and how these
markets are served.
 The operations system structure, which is concerned with the
manufacturing/service and supply/delivery system, and operations system
objectives, which are related to customer service and resource utilisation,
both determine what operations, plans and policies are set.
6.4.1 Understanding the production System
 The production system is concerned with the capacity, location, layout,
product or service design, work systems, degree of automation, extent of
vertical integration, and such factors.
 Therefore, all the decisions related to production of goods and services form
the production strategies. Strategies related to production system are
significant as they deal with vital issues related to production and thereby
affecting the capability of the organisation to achieve its objectives.
 Strategy implementation would have to take into account the production
system factors as they involve decisions which are long-term in nature and
influence not only the operations capability of an organisation but also its
ability to implement strategies and achieve objectives.
 For example, Excel Industries, a pioneering company in the area of industrial
and agro chemicals, adopted a policy of successive vertical integration for
import substitution. It starts with the end product and then integrates
backward to make raw materials for it.
Production/Operations Planning and Control
□ Strategies related to operations planning and control are concerned with
aggregate production planning; materials supply; inventory, cost, and quality
management; and maintenance of plant and equipment.
□ Here, the aim of strategy implementation is to see how efficiently resources
are utilized and in what manner the day-to-day operations can be
managed in the light of long-term objectives.
□ Operations planning and control provides an example of an organizational
activity that is aimed at translating the objectives into reality.
□ Some companies use quality control as a strategic tool. The operations
policies at KSB Pumps Ltd lay a great emphasis on quality aspects.
□ In implementing its strategy of stable growth, KSB Pumps has built a solid
reputation for its quality products. Structurally, it has a separate department
of quality assurance having two groups of quality inspection and quality
engineering. Thus, quality is a consideration not only at the inspection stage
but is built into the design itself.

Logistics Management
 For having a smooth and uninterrupted production process, management of
logistics is a process which integrates the flow of supplies into,
 through and out of an organization to achieve a level of service which
ensures that the right materials are available at the right place, at the right
time, of the right quality, and at the right cost.
 Organizations try to keep the cost of transporting materials as low as
possible consistent with safe and reliable delivery.
 Supply chain management helps in logistics and enables a company to have
constant contact with its distribution team, which could consist of trucks,
trains, or any other mode of transportation.
 Given the changes that affect logistics operations such as emerging
technologies and industry initiatives, developing and using a formal
logistics strategy is very important.
 For a business enterprise, effective logistic strategy will involve raising and
finding solutions to the following questions:
 Which sources of raw materials and components are available?
 How many manufacturing locations are there?
 What products are being made at each manufacturing location?
 What modes of transportation should be used for various products?
 What is the nature of distribution facilities?
 What is the nature of materials handling equipment possessed? Is it ideal?
 What is the method for deploying inventory in the logistics network?
 Should the business firm own the transport vehicles or hire?

 Improvement in logistics can results in savings in cost of doing business.

These savings can also reveal in the profits of the company. Some examples
of how logistics can help a business are as follows:
 Cost savings
 Reduced inventory
 Improved delivery time
 Customer satisfaction
 Competitive advantage
Supply Chain Management
 Supply chain management is defined as the process of planning,
implementing, and controlling the supply chain operations.
 It is a cross-functional approach to managing the movement of raw
materials into an organization and the movement of finished goods out of
the organization toward the end-consumer who are to be satisfied as
efficiently as possible.
 It encompasses all movement and storage of raw materials, work-in-process
inventory, and finished goods from point-of-origin to point-of-consumption.
 Organizations are finding that they must rely on the chain to successfully
compete in the global market.
 Hence, supply chain refers to the linkages between suppliers, manufacturers
and customers. Supply chains involve all activities like sourcing and
procurement of material, conversion, and includes logistics.
 Planning and control of supply chains are important components of its
management. Naturally, management of supply chains include closely
working with channel partners – suppliers, intermediaries, other service
providers and customers.
 Technological changes and reduction in information communication costs
with increase in its speed has led to changes in coordination among the
members of the supply chain network.
 Modern organizations are striving to focus on core competencies and
reduce their ownership of sources of raw materials and distribution channels.
 These functions can be outsourced to other business organizations that
specialize in those activities and can perform in better and cost effective
manner.
 In a way organizations in the supply chain do tasks according to their core-
competencies. Working in the supply chain improve trust and collaboration
amongst partners and thus improve flow and management of inventory.
 Is logistic management same as supply chain management? Supply
chain management is an extension of logistic management.
 However, there is difference between the two. Logistical activities typically
include management of inbound and outbound goods, transportation,
warehousing, handling of material, fulfilment of orders, inventory
management, supply/demand planning.
 Although these activities also form part of Supply chain management, the
latter has different components.
Logistic management can be termed as one of its part that is related to
planning, implementing, and controlling the movement and storage of
goods, services and related information between the point of origin and the
point of consumption.
 Supply chain management includes more aspects apart from the logistics
function.
It is a tool of business transformation and involves delivering the right
product at the right time to the right place and at the right price.
It reduces costs to organizations and enhances customer service.

Implementing Supply Chain Management System for effective

strategic implementation
 A successful implementation of supply management system requires a
change from managing individual functions to integrating activities into key
supply chain processes.
 It involves collaborative work between buyers and suppliers, joint product
development, common systems and shared information.
 A key requirement for successfully implementing supply chain will be
network of information sharing and management. The partners need to link
together to share information through electronic data interchange and take
decisions in timely manner.
What are steps in successfully implementing and running SCM?
Implementing and successfully running supply chain management system will
involve:
1. Product Development: Customers and suppliers must work together in the
product development process.
Right from the start the partners will have knowledge of all Involving all
partners will help in shortening the time of launch. Products are developed
and launched in shorter time and help organizations to remain competitive. Eg.
Amazon delivery in estimated time
2. Procurement: Procurement requires careful resource planning, quality

issues, identifying sources, negotiation, order placement, inbound
transportation and storage.
Organizations have to coordinate with suppliers in scheduling without
interruptions. Suppliers are involved in planning the manufacturing process.
(Out if all suppliers we will select best one )
3. Manufacturing: Flexible manufacturing processes must be in place to
respond to market changes.
They should be adaptive to accommodate customization and changes in the
taste and preferences.
Manufacturing should be done on the basis of just-in-time (JIT) and minimum
lot sizes. Changes in the manufacturing process be made to reduce
manufacturing cycle.
4. Physical Distribution: Delivery of final products to customers is the last

position in a marketing channel. Availability of the products at the right
place at right time is important for each channel participant.
Through physical distribution processes serving the customer become an
integral part of marketing. Thus supply chain management links a marketing
channel with customers.
5. Outsourcing: Outsourcing is not limited to the procurement of materials
and components, but also includes outsourcing of services that traditionally
have been provided within an organization.
The company will be able to focus on those activities where it has
competency and everything else will be outsourced. Eg. IT, Courier.
6. Customer Services: Organizations through interfaces with the company’s
production and distribution operations develop customer relationships so
as to satisfy them.
They work with customer to determine mutually satisfying goals, establish
and maintain relationships. This in turn helps in producing positive feelings in
the organization and the customers
7. Improved Performance: An uninterrupted supply chain can contribute
significantly in improving the overall performance of the organization by
building a strong relationship between the supplier, customer and
organisation.
Performance is measured by different parameters such as costs, customer
service, productivity and quality and supplier involvement and capabilities
can help in building long lasting customer relationships.
6.5 RESEARCH AND DEVELOPMENT STRATEGY

Strategic Decisions in Research and development
Eg. Microsoft, Alphabet (Google), Volkswagen.
 Research and development (R&D) personnel can play an integral part in
strategy implementation.
 These individuals are generally charged with developing new products and
improving old products in a way that will allow effective strategy
implementation.
 R&D employees and managers perform tasks that include transferring
complex technology, adjusting processes to local raw materials, adapting
processes to local markets, and altering products to particular tastes and
specifications.
Strategies such as product development, market penetration, and
concentric diversification require that new products be successfully

developed and that old products be significantly improved. But the level of
management support for R&D is often constrained by resource availability.
 Technological improvements that affect consumer and industrial products and
services shorten product life cycles. Companies in virtually, every industry are
relying on the development of new products and services to fuel profitability
and growth.
 Surveys suggest that the most successful organizations use an R&D strategy
that ties external opportunities to internal strengths and is linked with
objectives. Well formulated R&D policies match market opportunities with
internal capabilities.
 R&D policies can enhance strategy implementation efforts to:
 Emphasize product or process improvements.
 Stress basic or applied research.
 Be leaders or followers in R&D.
 Develop robotics or manual-type processes.
 Spend a high, average, or low amount of money on R&D.
 Perform R&D within the firm or to contract R&D to outside firms.
 Use university researchers or private sector researchers.
There must be effective interactions between R&D departments and other
functional departments in implementing different types of generic business
strategies. Conflicts between marketing, finance/accounting, R&D, and
information systems departments can be minimized with clear policies and
objectives.
A critical question is whether a firm should develop research and development
expertise internally or outsource it outside to external agencies.
The following guidelines can be used to help make this decision: (imp) MCQ
What are the guild lines which helps in deciding, research should be inhouse or
outsourced ?
 If the rate of technical progress is slow, the rate of market growth is
moderate, and there are significant barriers to possible new entrants, then
in-house R&D is the preferred solution. A p p l e = I O S .
The reason is that R&D, if successful, will result in a temporary product or
process monopoly that the company can exploit.

 If technology is changing rapidly and the market is growing slowly, then a
major effort in R&D may be very risky, because it may lead to the
development of an ultimately obsolete technology or one for which there is
no market.
 If technology is changing slowly but the market is growing quickly, there
generally is not enough time for in-house development. The prescribed
approach is to obtain R&D expertise on an exclusive or nonexclusive basis
from an outside firm.
 If both technical progress and market growth are fast, R&D expertise
should be obtained through acquisition of a well-established firm in the
industry.

R & D Approaches to Implement Strategic Decisions

What are R&D approaches to implement strategic decisions? Imp (LIC)
There are at least three major R&D approaches for implementing strategies.
i. Be the leader: The first strategy is to be the first firm to market new
technological products.
This is a glamorous and exciting strategy but also a dangerous one.
Firms such as 3M and General Electric have been successful with this approach,
but many other pioneering firms have fallen, with rival firms seizing the
initiative. Maggi, Paytm, Nokia
ii. Be an innovative imitator: A second R&D approach is to be an innovative
imitator of successful products, thus minimizing the risks and costs of
startup.
This approach entails allowing a pioneer firm to develop the first version of the
new product and to demonstrate that a market exists. Yippi,Phonepe,
Samsung.
Then, laggard (fall behind) firms develop a similar product. This strategy
requires excellent R&D personnel and an excellent marketing department.
iii. Be a low cost producer: A third R&D strategy is to be a low-cost
producer by mass-producing products similar to but less expensive than
products recently introduced.
As a new product accepted by customers, price becomes increasingly
important in the buying decision. Also, mass marketing replaces personal
selling as the dominant selling strategy. China phones vivo, Oppo, Bharat
Pe.
This R&D strategy requires substantial investment in plant and equipment,
but fewer expenditures in R&D than the two approaches described earlier.
6.6 HUMAN RESOURCE STRATEGY

Role of Human Resources in Strategic Management
 Strategic responsibilities of the human resource manager include assessing
the staffing needs and costs for alternative strategies proposed during
strategy formulation and developing a staffing plan for effectively
implementing strategies. The plan must also include how to motivate
managers and employees.
 The human resource department must develop performance incentives
that clearly link performance and pay to strategies.
 The process of empowering managers and employees through their
involvement in strategic management activities yields the greatest benefits
when all organizational members understand clearly how they will benefit
personally if the firm does well.
 Linking company and personal benefits is a major new strategic responsibility
of human resource managers.
 Other new responsibilities for human resource managers may include
establishing and administering an employee to have conductive work
environment, maintain work life balance, syncronising individual with
organisation goals.

Major Strategic Decisions/Concerns related to Human Resource

Management ( Nov 22) FDI
A well-designed strategic-management system can fail if insufficient attention is
given to the human resource dimension.
Human resource problems that arises when a business implements strategies can
usually be traced to one of three causes: (1) disruption of social and political
structures,
(2) Failure to match individuals’ aptitudes with implementation tasks, and
(3) Inadequate top management support for implementation activities.
i. Disruption of social and political structures
Strategy implementation poses a threat to many managers and employees in an
organization.
New power and status relationships are anticipated and realized. New formal and
informal groups’ values, beliefs, and priorities may be largely unknown.
Managers and employees may become engaged in resistance behaviour as their
roles, prerogatives, and power in the firm change.
Disruption of social and political structures that accompany strategy execution must
be anticipated and considered during strategy formulation and managed during
strategy implementation.
ii. Failure to match individuals’ aptitudes (liking) with implementation tasks
□ A concern in matching managers with strategy is that jobs have specific and
relatively static responsibilities, although people are dynamic in their personal
development.
□ Commonly used methods that match managers with strategies to be
implemented include transferring managers, developing leadership
workshops, offering career development activities, promotions, job
enlargement, and job enrichment.
□ A number of other guidelines can help ensure that human relationships
facilitate rather than disrupt strategy-implementation efforts.
□ Specifically, managers should do a form of chatting and informal questioning
to stay abreast of how things are progressing and to know when to intervene.
□ Managers can build support for strategy-implementation efforts by giving
few orders, announcing few decisions,

depending heavily on informal questioning, and seeking to probe and clarify until
a consensus emerges. Key thrusts that needed should be rewarded generously
and visibly.
□ It is surprising that so often during strategy formulation, individual values,
skills, and abilities needed for successful strategy implementation are not
considered.
□ It is rare that a firm selecting new strategies or significantly altering existing
strategies possesses the right line and staff personnel in the tight positions
for successful strategy implementation. The need to match individual
aptitudes with strategy-implementation tasks should be considered in
strategy choice.
iii. Inadequate top management support for implementation activities
 Inadequate support from strategists for implementation activities often
undermines organizational success.
 Chief executive officers, small business owners, and government agency
heads must be personally committed to strategy implementation and express
this commitment in highly visible ways.
 Strategists’ formal statements about the Importance of strategic management
must be consistent with actual support and rewards given for activities
completed and objectives reached. Otherwise, stress created by
inconsistency can cause uncertainty among managers and employees at all
levels.
 Perhaps the best method for preventing and overcoming human resource
problems in strategic management is to actively involve as many managers
and employees’ as possible in the process.
 Although time-consuming, this approach builds understanding, trust,
commitment and ownership and reduces resentment and hostility. The true
potential of strategy formulation and implementation resides in people.
Role of Human Resource management in Achieving Competitive
advantage
 A well trained and a competent workforce can go a long way in helping
to achieve competitive advantage for an organisation.
In a growing number of organizations, human resources are now viewed as a
source of competitive advantage. There is greater recognition that distinctive
competencies are obtained through highly developed employee skills,
distinctive organizational cultures, management processes and systems.
 To quote Charles Greer;
The role of human resources in enabling the organization to effectively deal with
the external environmental challenges, the human resource management function
has been accepted as a strategic partner in the formulation of organization’s
strategies and
in the implementation of such strategies through human resource planning,
employment, training, appraisal and rewarding of personnel.
An organization’s recruitment, selection, training, performance appraisal, and

compensation practices can have a strong influence on employee competence.
The following points should be kept in mind:

How can HR helps to achieve Competitive Advantage?

1. Recruitment and selection: The workforce will be more competent if a firm
can successfully identify, attract, and select the most competent applicants.
2. Training: The workforce will be more competent if employees are well
trained to perform their jobs properly.
3. Appraisal of performance: The performance appraisal is to identify any
performance deficiencies experienced by employees due to lack of
competence.
Such deficiencies, once identified, can often be solved through counseling,
coaching or training.
4. Compensation: A firm can usually increase the competency of its workforce
by offering pay and benefit packages that are more attractive than those of
their competitors.
This practice enables organizations to attract and retain the most capable
people.
Strategic Human Resource Management (SHRM)
 The human resource strategy of a business should reflect and support the
corporate strategy.
 An effective human resource strategy includes the way in which the
organization plans to develop its employees and provide them suitable
opportunities and better working conditions so that their optimal
contribution is ensured.
 This implies selecting the best available personnel, ensuring a ‘fit’ between
the employee and the job and retaining, motivating and empowering
employees to perform well in direction of corporate objectives.
 Strategic human resource management may be defined as the linking of
human resource management with strategic goals and objectives to improve
business performance and develop organizational culture that fosters
innovation and flexibility.
 The success of an organization depends on its human resources. This means
how they are acquired, developed, motivated and retained plays an
important role in organizational success.
 This presupposes an integrated approach towards human resource
functions and overall business functions of an organization.

The Human Resource Management practices of an organization may be an
important source of competitive advantage.
For this strategic focus, should be given on the following points:

 Pre-selection practices including human resource planning and job analysis.

 Selection practices meant to staff various positions in the organization. Both
recruitment and selection policies and procedures should be designed
keeping in view the mission and the purpose of the organization.
 Post-selection practices to maintain and improve the workers job
performance levels. Human Resources decisions related to training and
development, performance appraisal, compensation and motivation should
be based on corporate strategy of the organization.
Strategic Role of Human Resource Manager
What is the strategic role of HR manager? Imp
The prominent areas where the human resource manager can play strategic role
are as follows:
1. Providing purposeful direction: The human resource manager must be
able to lead people and the organization towards the desired direction
involving people right from the beginning.
The most important task of a HR manager is to ensure that the objectives of
an organization are internalized by each individual working in the
organization. Objectives of an organization state the very purpose and
justification of its existence.
2. Building core competency: The human resource manager has a great role
to play in developing core competency by the firm.
A core competence is a unique strength of an organization which may not be
shared by others.
This may be in the form of human resources, marketing capability, or
technological capability.
If the business is organized on the basis of core competency, it is likely to
generate competitive advantage. Because of this reason, many organizations
have restructured their businesses by divesting those businesses which do not
match core competence.
Organization of business around core competence implies leveraging the
limited resources of a firm.
It needs creative, courageous and dynamic leadership having faith in
organization’s human resources.
Core competencies is unique strength of firm. To maintain C.C. we need

courteous and dynamic leader who has faith in HR.
3. Creating competitive advantage: Creating and maintaining a competitive
advantage in the globalized market is the object of any organization.
There are two important ways a business can achieve a competitive
advantage over the others.
The first is cost leadership which means the firm aims to become a low cost
leader in the industry.
The second competitive strategy is differentiation under which the firm seeks
to be unique in the industry in terms of dimensions that are highly valued
by the customers.
Putting these strategies into effect carries a heavy premium on having a highly
committed and competent workforce.

4. Facilitation of change: The human resource manager will be more

concerned with substance rather than form, accomplishments rather than
activities, and practice rather than theory.
The HR function will be responsible for furthering the organization not just
maintaining it.
Human resource manager will have to devote more time to promote
changes than to maintain the status quo (same status).
5. Managing workforce diversity: In modern organizations, management of
diverse workforce is a great challenge.
Workforce diversity can be observed in terms of male and female workers,
young and old workers, educated and uneducated workers, unskilled and
professional employee, etc.
Moreover, many organizations also have people of different castes, religious
and nationalities. The workforce in future will comprise more of educated
and well aware workers.
They will ask for higher degree of participation and avenues for fulfilment.
Money will no longer be the sole motivating force for majority of the workers.
Non-financial incentives will also play an important role in motivating the
workforce.
6. Empowerment of human resources: Empowerment means authorizing
every member of an organization to take up his/her own destiny realizing
his/her full potential.
It involves giving more power to those who, at present, have little control
in what they do and little ability to influence the decisions being made around
them.
7. Development of work ethics and culture: Greater efforts will be needed
to achieve cohesiveness because employees will have transient commitment
to groups.
As changing work ethic requires increasing emphasis on individuals, jobs will
have to be redesigned to provide challenge.
Flexible starting and quitting times for employees may be necessary. Focus will
shift from extrinsic to intrinsic motivation.
A vibrant work culture will have to be developed in the organizations to create
an atmosphere of trust among the employees and to encourage creative ideas
by them.
SUMMARY
Functional strategies play two important roles – to provide support to the
corporate and business level strategies and spell out as to how functional
managers will work. Functional strategies facilitate flow of strategic decisions to
the different parts of an organization.

This chapter covers different categories of functional level strategies, viz.,

marketing, production/operations, finance and human resources. The functional
strategy related to the marketing area deals with different aspects of marketing
process and marketing mix – product, price, place and promotion. This chapter
also elucidates financial strategy - acquiring capital to implement strategies,
projected financial statements, management of funds and evaluating the worth of
a business.
Strategies related to production system are significant as they deal with vital
issues affecting the capability of the organization to achieve its objectives. For a
business organization, effective logistics strategy will involve to solve certain
problems with the help of supply chain management. Supply chain refers to the
linkages between suppliers, manufacturers and customers. Implementing and
successfully running supply chain management system will involve synergistic mix
of product development, material procurement, manufacturing, physical
distribution, outsourcing, customer services and performance measurement.
Research and Development personnel can play an important role in strategy
implementation. There must be effective interactions between R & D departments
and other functional departments in implementing different types of strategies.
Besides, human resource management function has been recognized as a
strategic partner in the formulation and implementation of organizational
strategies. The strategic role of human resource manager is also explained in the
chapter.

TEST YOUR KNOWLEDGE

Scenario Based Questions
Question 1
A web company initially started as an online marketplace for books. From
“biggest E - Bookstore,” its owners want to expand into an e commerce platform
selling electronic goods. Implementation of this needs additional funds. What are
the different sources of raising funds and their impact on the financial strategy
which you as a financial manager will consider?
Answer
Successful strategy implementation often requires additional capital. Besides net
profit from operations and the sale of assets, two basic sources of capital for an
organization are debt and equity. Being a financial manager to determine an
appropriate mix of debt and equity in a firm’s capital structure can be vital to
successful strategy implementation. Fixed debt obligations generally must be met,
regardless of circumstances. This does not mean that stock issuances are always
better than debt for raising capital. If ordinary stock is issued to finance strategy
implementation; ownership and control of the enterprise are diluted. This can be
a serious concern in today’s business environment of hostile takeovers, mergers,
and acquisitions.
The major factors regarding which strategies have to be made by a financial
manager are: capital structure; procurement of capital and working capital
borrowings; reserves and surplus as sources of funds; and relationship with
lenders, banks and financial institutions. Strategies related to the sources of funds
are important since they determine how financial resources will be made available
for the implementation of strategies. Organizations have a range of alternatives
regarding the sources of funds. While one company may rely on external
borrowings, another may follow a policy of internal financing.
Question 2
ABC Ltd is a company that has grown eleven times its size in last five years. With
the increase in size the company is facing difficulty in managing things. Many a
times functional level is not in sync with the corporate level. What will you like to
advise to the company and why?

Answer
The higher-level corporate strategies need to be segregated into viable plans and
policies that are compatible with each other and communicated down the line.
The higher-level strategies need to be broken into functional strategies for
implementation. These functional strategies, in form of marketing, finance, human
resource, production, research and development help in achieving the
organisational objective. The reasons why functional strategies are needed can be
enumerated as follows:
□ Functional strategies lay down clearly what is to be done at the functional
□ They are aimed at facilitating the implementation of corporate strategies
□ They act as basis for controlling activities in the different functional areas of
business.
□ They help in bringing harmony and coordination as they are formulated to
□ Similar situations occurring in different functional areas are handled in a
consistent manner by the functional managers.
Question 3
ABC Ltd was facing problems in achieving efficiency and improving results. The
functional managers were called for a meeting to address the issue. After a lot of
brain storming, it was decided to go for a redesigning of the set systems by
making the processes innovative. Hence, the redesigning of its infrared sighting
mechanism that it supplied to another company was undertaken. It was observed
that ABC Ltd. had reduced its number of parts from 37 to 10, the number of
assembly steps from 27 to 12, the time spent fabricating metal on fabricating
metal from 525 minutes per unit to 150 minutes per unit, and the unit assembly
time from 129 minutes to 20 minutes. As a result, a substantial decline in
manufacturing costs occurs. This helped the company in attaining better sales
and bigger market shareTo achieve the operational efficiency, which of functional
areas must have been involved and why?
Answer
To achieve this kind of operational efficiency, the functional areas that must have
been majorly involved are Production department and R & D department. The
main aim of production department in the strategic implementation is concerned

with the capacity, location, layout, product or service design, work systems,
degree of automation, extent of vertical integration, and such factors. Strategies
related to production system are significant as they deal with vital issues affecting
the capability of the organisation in achieving production related strategical goals
such as using efficient production strategies like Just-in-Time technique and
flexible manufacturing processes that aim at building efficiency in operational
matters.
The strategies related to operations planning and control also come under the
purview of production manager. These are concerned with aggregate production
planning, materials supply, inventory, cost, and quality management; and
maintenance of plant and equipment. Here, the aim of strategy implementation is
to see how efficiently resources are utilized and in what manner the day-to-day
operations can be managed in the light of long-term objectives. Operations
planning and control provides an example of an organizational activity that is
aimed at translating the objectives into reality and has been used as an efficient
strategic tool.
In this case every effort at every level was made to reduce the cost of production
by redesigning its products and streamline production processes. They also
thought in terms of making production processes innovative and this can be
achieved by the cross-functional involvement as it involves working on
production processes, quality management and applying innovative techniques.
This brings in the role of R&D department too in this process of redesigning and
improving efficiency.
R & D department performs tasks that include transferring complex technology,
adjusting processes to local raw materials, adapting processes to local markets,
and altering products to particular tastes and specifications and improve the old
products be significantly. R&D strategy to be effective need to tie external
opportunities to internal strengths and is linked with attainment of objectives as it
emphasizes on product or process improvements, on applied research. Hence, in
the above case, both production and R&D department were involved in
redesigning of its infrared sighting mechanism, reduced its number of parts, the
number of assembly steps, the time spent fabricating metal on fabricating metal
and the unit assembly time. This led to their achieving their functional strategic
goal of achieving efficiency and cutting costs and thereby improving their
production processes.

Question 4
Ronit Roy has started a new business of manufacturing washing powder. Make a
plan for him to promote his product.
Answer
Promotion stands for activities that communicate the merits of the product and
persuade target consumers to buy it. Strategies are needed to combine individual
methods such as advertising, personal selling, and sales promotion into a
coordinated campaign. Modern marketing is highly promotional oriented.
Ronit needs to cover four major direct promotional methods or tools – personal
selling, advertising, publicity and sales promotion. They are briefly explained as
follows:
(i) Personal Selling: Personal selling is one of the oldest forms of promotion.
It involves face-to-face interaction of sales force with the prospective
customers and provides a high degree of personal attention to them. In
personal selling, oral communication is made. It may initially focus on
developing a relationship, an end up with efforts for making a sale. Personal
selling suffers from a very high costs as sales personnel attend one
customer at a time.
(ii) Advertising: Advertising is a non-personal, highly flexible and dynamic
promotional method. The media for advertisings are several such as
pamphlets, brochures, newspapers, magazines, hoardings, display boards,
radio, television and internet. Choice of appropriate media is important for
effectiveness of the message. The media may be local, regional, or national.
The type of the message, copy, illustration are a matter of choice and
creativity. Advertising may be directed towards consumers, middlemen or
opinion leaders. Advertising is likely to succeed in promoting the sales of an
organization but its effectiveness in respect to the expenditure cannot be
directly measured. Sales is a function of several variables out of which
advertising is only one.
(iii) Publicity: Publicity is also a non-personal form of promotion similar to
advertising. However, no payments are made to the media as in case of
advertising. Organizations skillfully seek to promote themselves and their
product with negligible cost. Publicity is communication of a product, brand
or business by placing information about it in the media. Basic tools for
publicity are press releases, press conferences, reports, stories, and internet
releases. These releases must be of interest to the public.

(iv) Sales promotion: Sales promotion is an omnibus term that includes all
activities that are undertaken to promote the business but are not
specifically included under personal selling, advertising or publicity.
Activities like discounts, contests, money refunds, installments, kiosks,
exhibitions and fairs constitute sales promotion. All these are meant to give
a boost to the sales.
Question 5
Rohit Bhargava is the Managing Director of Smooth and Simple Pvt Ltd. The
company established in 2011, with 35 employees grew very fast to become an
organisation with 335 employees in the year 2016. With the increase in size Rohit
started facing difficulty in managing things. Many a times he finds that personnel
at the functional level are not in sync with the strategies of the top. He felt that
strategies need to be segregated into viable plans and policies that are
compatible with each other and communicated down the line.
Why does Rohit need to segregate the strategies into functional plans? Discuss.
Answer
Rohit Bhargava needs to break higher level strategies into functional strategies
for implementation. These functional strategies, in form of Marketing, Finance,
Human Resource, Production, Research and Development help in achieving the
organisational objective. The reasons why functional strategies are needed can be
enumerated as follows:
 Functional strategies lay down clearly what is to be done at the functional
 They are aimed at facilitating the implementation of corporate strategies
 They act as basis for controlling activities in the different functional areas of
business.
 They help in bringing harmony and coordination as they are formulated to
 Similar situations occurring in different functional areas are handled in a

Descriptive Questions
Question 6
What is meant by Functional strategies? In term of level, where will you put them?
Are functional strategies really important for business?
Answer
Once higher level corporate and business strategies are developed, management
has to to formulate and implement strategies for each functional area. For
effective implementation, strategists have to provide direction to functional
managers regarding the plans and policies to be adopted. In fact, the
effectiveness of strategic management depends critically on the manner in which
strategies are implemented. Strategy of one functional area can not be looked at
in isolation, because it is the extent to which all the functional tasks are
interwoven that determines the effectiveness of the major strategy.
Functional area strategy such as marketing, financial, production and human
resource are based on the functional capabilities of an organisation. For each
functional area, first the major sub areas are identified and then for each of these
sub functional areas, contents of functional strategies, important factors, and their
importance in the process of strategy implementation is identified.
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
organisation. Functional managers need guidance from the business strategy in
order to make decisions. Operational plans tell the functional managers what has
to be done while policies state how the plans are to be implemented.
Major strategies must be translated to lower levels to give holistic strategic
direction to an organisation. Functional strategies provide details to business
strategy & govern as to how key activities of the business will be managed.
Functional strategies play two important roles. Firstly, they provide support to the
overall business strategy. Secondly, they spell out as to how functional managers
will work so as to ensure better performance in their respective functional areas.
The reasons why functional strategies are really important and needed for
business can be enumerated as follows:

 The development of functional strategies is aimed at making the strategies-

formulated at the top management level-practically feasible at the
functional level.
 Functional strategies facilitate flow of strategic decisions to the different
parts of an organisation.
 They act as basis for controlling activities in the different functional areas of
business.
 The time spent by functional managers in decision-making is reduced as
plans lay down clearly what is to be done and policies provide the
discretionary framework within which decisions need to be taken.
 Functional strategies help in bringing harmony and coordination as they
remain part of major strategies.
 Similar situations occurring in different functional areas are handled in a
Question 7
What do you mean by financial strategy of an organization? How the worth of a
business is evaluated?
Answer
The financial strategies of an organization are related to several finance/
accounting concepts considered to be central to strategy implementation. These
are: acquiring needed capital/sources of fund, developing projected financial
statements/budgets, management/ usage of funds, and evaluating the worth of a
business.
Various methods for determining a business’s worth can be grouped into three
main approaches which are as follows:
(i) Net worth or stockholders’ equity: Net worth is the total assets minus
total outside liabilities of an organisation.
(ii) Future benefits to owners through net profits: These benefits are
considered to be much greater than the amount of profits. A conservative
rule of thumb is to establish a business’s worth as five times the firm’s
current annual profit. A five-year average profit level could also be used.
(iii) Market-determined business worth: This, in turn, involves three methods.
First, the firm’s worth may be based on the selling price of a similar
company. The second approach is called the price-earnings ratio method

whereby the market price of the firm’s equity shares is divided by the
annual earnings per share and multiplied by the firm’s average net income
for the preceding years. The third approach can be called the outstanding
shares method whereby one has to simply multiply the number of shares
outstanding by the market price per share and add a premium.
Question 8
Successful implementation of any project needs additional funds. What are the
different sources of raising funds and their impact on the financial strategy which
you as a Financial Manager will consider?
Answer
Successful strategy implementation often requires additional capital. Besides net
profit from operations and the sale of assets, two basic sources of capital for an
organization are debt and equity. Being a financial manager to determine an
appropriate mix of debt and equity in a firm’s capital structure can be vital to
successful strategy implementation. Fixed debt obligations generally must be met,
regardless of circumstances. This does not mean that stock issuances are always
better than debt for raising capital. If ordinary stock is issued to finance strategy
implementation; ownership and control of the enterprise are diluted. This can be
a serious concern in today’s business environment of hostile takeovers, mergers,
and acquisitions.
The major factors regarding which strategies have to be made by a financial
manager are: capital structure; procurement of capital and working capital
borrowings; reserves and surplus as sources of funds; and relationship with
lenders, banks and financial institutions. Strategies related to the sources of funds
are important since they determine how financial resources will be made available
for the implementation of strategies. Organizations have a range of alternatives
regarding the sources of funds. While one company may rely on external
borrowings, another may follow a policy of internal financing.
Question 9
Explain any three prominent areas where Human Resource Manager can play a
strategic role.
Answer
The prominent areas where the human resource manager can play strategic role
are as follows:

1. Providing purposeful direction: The human resource manager must be

able to lead people and the organization towards the desired direction
involving people right from the beginning. The most important task of a HR
manager is to ensure that the objectives of an organization are internalized
by each individual working in the organization. Objectives of an
organization state the very purpose and justification of its existence.
2. Building core competency: The human resource manager has a great role
to play in developing core competency by the firm. A core competence is a
unique strength of an organization which may not be shared by others. This
may be in the form of human resources, marketing capability, or
technological capability. If the business is organized on the basis of core
competency, it is likely to generate competitive advantage. Because of this
reason, many organizations have restructured their businesses by divesting
those businesses which do not match core competence. Organization of
business around core competence implies leveraging the limited resources
of a firm. It needs creative, courageous and dynamic leadership having faith
in organization’s human resources.
3. Creating competitive advantage: Creating and maintaining a competitive
advantage in the globalized market is the object of any organization. There
are two important ways a business can achieve a competitive advantage
over the others. The first is cost leadership which means the firm aims to
become a low cost leader in the industry. The second competitive strategy is
differentiation under which the firm seeks to be unique in the industry in
terms of dimensions that are highly valued by the customers. Putting these
strategies into effect carries a heavy premium on having a highly committed
and competent workforce.
4. Facilitation of change: The human resource manager will be more
concerned with substance rather than form, accomplishments rather than
activities, and practice rather than theory. The HR function will be
responsible for furthering the organization not just maintaining it. Human
resource manager will have to devote more time to promote changes than
to maintain the status quo.
5. Managing workforce diversity: In modern organizations, management of
diverse workforce is a great challenge. Workforce diversity can be observed
in terms of male and female workers, young and old workers, educated and
uneducated workers, unskilled and professional employee, etc. Moreover,
many organizations also have people of different castes, religious and

nationalities. The workforce in future will comprise more of educated and

self conscious workers. They will ask for higher degree of participation and
avenues for fulfilment. Money will no longer be the sole motivating force for
majority of the workers. Non-financial incentives will also play an important
role in motivating the workforce.
6. Empowerment of human resources: Empowerment means authorizing
every member of an organization to take up his/her own destiny realizing
his/her full potential. It involves giving more power to those who, at
present, have little control what they do and little ability to influence the
decisions being made around them.
7. Development of works ethic and culture: Greater efforts will be needed
to achieve cohesiveness because employees will have transient commitment
to groups. As changing work ethic requires increasing emphasis on
individuals, jobs will have to be redesigned to provide challenge. Flexible
starting and quitting times for employees may be necessary. Focus will shift
from extrinsic to intrinsic motivation. A vibrant work culture will have to be
developed in the organizations to create an atmosphere of trust among the
employees and to encourage creative ideas by them.
Question 10
State the factors of human resource that influence employee’s competence.
Answer
Human resource management has been accepted as a strategic partner in the
formulation of organization’s strategies and in the implementation of such
strategies through human resource planning, employment, training, appraisal and
reward systems. The following points should be kept in mind as they can have a
strong influence on employee competence:
i. Recruitment and selection: The workforce will be more competent if a firm
can successfully identify, attract, and select highly competent applicants.
ii. Training: The workforce will be more competent if employees are well
trained to perform their jobs properly.
iii. Appraisal of performance: The performance appraisal is to identify any
performance deficiencies experienced by employees due to lack of
competence. Such deficiencies, once identified, can often be solved through
counselling, coaching or training.

iv. Compensation: A firm can usually increase the competency of its workforce
by offering pay, benefits and rewards that are not only attractive than those
of their competitors but also recognizes merit.
Question 11
How would you argue that Research and Development Personnel are important
for effective strategy implementation?
Answer
Research and Development (R&D) personnel can play an integral part in strategy
implementation. These individuals are generally be charged with developing new
products and improving old products in a way that will allow effective strategy
implementation. R&D employees and managers perform tasks that include
transferring complex technology, adjusting processes to local raw materials,
adapting processes to local markets, and altering products to particular tastes
and specifications.
Strategies such as product development, market penetration, and concentric
diversification require that new products be successfully developed and that old
products be significantly improved. But the level of management support for R&D
is often constrained by resource availability.
Question 12
“Evaluating the worth of a business is central to strategy implementation.” In the
light of this statement, explain the methods that can be used for determining the
worth of a business.
Answer
It is true that evaluating the worth of a business is central to strategy
implementation. There are circumstances where it is important to evaluate the
actual worth of the business. These circumstances can be wide and varied. At a
higher level they may include acquisition, merges or diversification. They may also
include other situations such as fixing of share price in an issue. Acquisition,
merger, retrenchment may require establishing the financial worth or cash value
of a business to successfully implement such strategies.
Various methods for determining a business’s worth can be grouped into three
main approaches.
(i) Net worth or stockholders’ equity: Net worth is the total assets minus total
outside liabilities of an organisation.

(ii) Future benefits to owners through net profits: These benefits are considered
to be much greater than the amount of profits. A conservative rule of thumb
is to establish a business’s worth as five times the firm’s current annual
profit. A five-year average profit level could also be used.
(iii) Market-determined business worth: This, in turn, involves three methods.
First, the firm’s worth may be based on the selling price of a similar
company. The second approach is called the price-earnings ratio method
whereby the market price of the firm’s equity shares is divided by the
annual earnings per share and multiplied by the firm’s average net income
for the preceding years. The third approach can be called the outstanding
shares method whereby one has to simply multiply the number of shares
outstanding by the market price per share and add a premium.
Question 13
What do you understand by the term marketing mix? Briefly explain its various
components.
Answer
Marketing mix is a systematic way of classifying the key decision areas of
marketing management. It is the set of controllable marketing variables that the
firm blends to produce the response it wants in the target market. The original
framework of marketing mix comprises of 4Ps- product, price, place and
promotion. These are subsequently expanded to highlight certain other key
decision areas especially in case of services like people, processes, and physical
evidence. The elements of original framework are:
 Product: It stands for the “goods-and-service” combination the company
offers to the target market.
 Price: It stands for the amount of money customers have to pay to obtain
the product.
 Place: It stands for company activities that make the product available to
target consumers and include marketing channel, distribution policies and
geographical availablity.
 Promotion: It stands for activities that communicate the merits of the
product and persuade target consumers to buy it.
Expanded Marketing Mix: Typically, all organizations use a combination of 4 Ps in
some form or the other. However, the above elements of marketing mix are not

exhaustive as there are a few more elements that may form part of marketing mix
strategy as follows:
People: all human actors who play a part in delivery of the market offering and
thus influence the buyer’s perception, namely the firm’s personnel and the
customer.
Physical evidence: the environment in which the market offering is delivered and
where the firm and customer interact.
Process: the actual procedures, mechanisms and flow of activities by which the
product / service is delivered.
Question 14
What do you understand by promotion? What are various promotion tools
adopted by organization?
Answer
Promotion stands for activities that communicate the merits of the product and
persuade target consumers to buy it. Strategies are needed to combine individual
methods such as advertising, personal selling, and sales promotion into a
coordinated campaign. In addition promotional strategies must be adjusted as a
product move from an earlier stages from a later stage of its life.
Modern marketing is highly promotional oriented. Organizations strive to push
their sales and market standing on a sustained basis and in a profitable manner
under conditions of complex direct and indirect competitive situations.
Promotion is communication, persuasion and conditioning process. There are at
least four major direct promotional methods or tools briefly explained as follows:
(i) Personal Selling: Personal selling is one of the oldest forms of promotion.
It involves face-to-face interaction of sales force with the prospective
customers and provides a high degree of personal attention to them. In
personal selling, oral communication is made. It may initially focus on
developing a relationship, an end up with efforts for making a sale. Personal
selling suffers from a very high costs as sales personnel attend one
customer at a time.
(ii) Advertising: Advertising is a non-personal, highly flexible and dynamic
promotional method. The media for advertisings are several such as
pamphlets, brochures, newspapers, magazines, hoardings, display boards,
radio, television and internet. Choice of appropriate media is important for
effectiveness of the message. The media may be local, regional, or national.

The type of the message, copy, illustration are a matter of choice and
creativity. Advertising may be directed towards consumers, middlemen or
opinion leaders. Advertising is likely to succeed in promoting the sales of an
organization but its effectiveness in respect to the expenditure cannot be
directly measured. Sales is a function of several variables out of which
advertising is only one.
(iii) Publicity: Publicity is also a non-personal form of promotion similar to
advertising. However, no payments are made to the media as in case of
advertising. Organizations skillfully seek to promote themselves and their
product with negligible cost. Publicity is communication of a product, brand
or business by placing information about it in the media. Basic tools for
publicity are press releases, press conferences, reports, stories, and internet
releases. These releases must be of interest to the public.
(iv) Sales promotion: Sales promotion includes all activities that are undertaken
to promote the business but are not specifically included under personal
selling, advertising or publicity. Activities like discounts, contests, money
refunds, installments, kiosks, exhibitions and fairs constitute sales
promotion. All these are meant to give a boost to the sales.
Question 15
What is supply chain management? Is it same as logistics management? Discuss.
Answer
Meaning of Supply Chain management: The term supply chain refers to the
linkages between suppliers, manufacturers and customers. Supply chains involve
all activities like sourcing and procurement of material, conversion, and logistics.
Planning and control of supply chains are important components of its
management. Naturally, management of supply chains include closely working
with channel partners – suppliers, intermediaries, other service providers and
customers.
Supply chain management is defined as the process of planning, implementing,
and controlling the supply chain operations. It is a cross-functional approach to
managing the movement of raw materials into an organization and the
movement of finished goods out of the organization toward the end-consumer
who are to be satisfied as efficiently as possible. It encompasses all movement
and storage of raw materials, work-in-process inventory, and finished goods from
point-of-origin to point-of-consumption. Organizations are finding that they
must rely on the chain to successfully compete in the global market.

Modern organizations are striving to focus on core competencies and reduce

their ownership of sources of raw materials and distribution channels. These
functions can be outsourced to other business organizations that specialize in
those activities and can perform in better and cost effective manner. In a way
organizations in the supply chain do tasks according to their core-competencies.
Working in the supply chain improve trust and collaboration amongst partners
and thus improve flow and management of inventory.
Is logistic management same as supply chain management? Supply chain
management is an extension of logistic management. However, there is difference
between the two. Logistical activities typically include management of inbound
and outbound goods, transportation, warehousing, handling of material,
fulfilment of orders, inventory management, supply/demand planning. Although
these activities also form part of Supply chain management, the latter has
different components. Logistic management can be termed as one of its part that
is related to planning, implementing, and controlling the movement and storage
of goods, services and related information between the point of origin and the
point of consumption.
Supply chain management includes more aspects apart from the logistics
function. It is a tool of business transformation and involves delivering the right
product at the right time to the right place and at the right price. It reduces costs
of organizations and enhances customer service.
Question 16
Discuss the major steps in implementing supply chain management system in a
business organization.
Answer
Successful implementing supply management systems requires a change from
managing individual functions to integrating activities into key supply chain
processes. It involves collaborative work between buyers and suppliers, joint
product development, common systems and shared information. A key
requirement for successfully implementing supply chain will be network of
information sharing and management. The partners need to link together to share
information through electronic data interchange and take decisions in timely
manner.
Implementing and successfully running supply chain management system will
involve:

1. Product development: Customers and suppliers must work together in the

product development process. Right from the start the partners will have
knowledge of all. Involving all partners will help in shortening the life cycles.
Products are developed and launched in shorter time and help
organizations to remain competitive.
2. Procurement: Procurement requires careful resource planning, quality
issues, identifying sources, negotiation, order placement, inbound
transportation and storage. Organizations have to coordinate with suppliers
in scheduling without interruptions. Suppliers are involved in planning the
manufacturing process.
3. Manufacturing: Flexible manufacturing processes must be in place to respond
to market changes. They should be adaptive to accommodate customization
and changes in the taste and preferences. Manufacturing should be done on
the basis of just-in-time (JIT) and minimum lot sizes. Changes in the
manufacturing process be made to reduce manufacturing cycle.
4. Physical distribution: Delivery of final products to customers is the last
position in a marketing channel. Availability of the products at the right
place at right time is important for each channel participant. Through
physical distribution processes serving the customer become an integral
part of marketing. Thus, supply chain management links a marketing
channel with customers.
5. Outsourcing: Outsourcing is not limited to the procurement of materials
and components, but also include outsourcing of services that traditionally
have been provided within an organization. The company will be able to
focus on those activities where it has competency and everything else will
be outsourced.
6. Customer services: Organizations, through interfaces with the company’s
production and distribution operations, develop customer relationships so
as to satisfy them. They work with customer to determine mutually
satisfying goals, establish and maintain relationships. This in turn help in
producing positive feelings in the organization and the customers.
7. Performance measurement: There is a strong relationship between the
supplier, customer and organisation. Supplier capabilities and customer
relationships can be correlated with a firm performance. Performance is
measured in different parameters such as costs, customer service,
productivity and quality.

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CHAPTER 6

After studying this chapter, you will be able to -

Most of the time, strategists should not be formulating strategy at all;

© The Institute of Chartered Accountants of India

how key activities of the business are to be managed.

 In terms of the levels of strategy formulation, functional strategies operate

 Functional strategies are made within the framework of corporate level

Need for Functional Strategies:

What is the need for functional strategies?

 They are aimed at facilitating the implementation of corporate strategies

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6.2 MARKETING STRATEGY

 Marketing is an activity performed by all business organizations. It is an

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© The Institute of Chartered Accountants of India

6. Whether to reward sales people based on straight salary, straight

 Connecting with customers: To succeed in today’s competitive marketplace,

 They must win customers from competitors and keep them by

 Since companies cannot satisfy all customers in a given market, they

 Eg. Cred marketing.

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

(ii) Advertising: Advertising is a non-personal, highly flexible and

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© The Institute of Chartered Accountants of India

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Figure: Strategic marketing management process

 A detailed plan is needed for each business, product, or brand. A product

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 Person Marketing: People can also be marketed. Person marketing consists of

© The Institute of Chartered Accountants of India

6.3 FINANCIAL STRATEGY

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 Financial budgets have some limitations also. First, budgetary

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c. Strategising utilization/management of funds: Plans and policies for the

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d. Evaluating the worth of a business: (imp)

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6.4 PRODUCTION/OPERATIONS STRATEGY

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 Improvement in logistics can results in savings in cost of doing business.

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Implementing Supply Chain Management System for effective

2. Procurement: Procurement requires careful resource planning, quality

4. Physical Distribution: Delivery of final products to customers is the last

6.5 RESEARCH AND DEVELOPMENT STRATEGY

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© The Institute of Chartered Accountants of India

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R & D Approaches to Implement Strategic Decisions