Functional strategies in strategic management are usually a part of overall corporate strategy prepared for various functional areas of its organizational structure (i.e. production, marketing, sales). It helps managers in focusing company's activities to its major functional areas of activity (so called: key success factors). Most common functional strategies used in management are: financial strategy, marketing strategy, production strategy, human resources strategy (personnel strategy) and research and development strategy.
Management strategy is formed on three levels: entire company (so called corporate strategy), individual business units or sector of industry and at a functional level Such a multi-level strategic management approach makes the concept of strategic management highly ambiguous. It can be considered from the point of view of the entire company (top executives) and domain-specific subsystems or functional components. The lack of precise definition can cause that the "strategic" role for the companies can be individual workstations or processes carried out at the lowest levels of the organization. In particular, the discussion concerns the question of the validity of studies highlighting functional strategies.
Strategic autonomy of functions
Some believe that the functions of the company may not have strategic autonomy as functional strategies (described by supporters of a multi-level approach to the analysis of corporate strategy). Functional strategies penetrate both the corporate strategy and business unit strategies.
It is postulated that rather than functional strategy this concept should be called functional programs as the functions can not have independence and realize their "own" strategy if the company is to be treated as an integrated system. Functional strategies therefore should be described as "functional action programs" complementing overall corporate strategy.
Functional strategies are a refinement of the basic strategy of the company (or SJG strategy) with respect to the individual areas (e.g.. marketing strategies, production strategies, financial strategies) (fig. 1.).
Analysing the arguments of different authors, you can see that the dispute about the place and role of functional strategy is purely terminological and revolves around weight, which the author assigns to the meaning of the term "strategy" and "strategic management". The higher the weight is, the greater the resistance against the "grinding" of the term and use it to determine the various specific types of business activities in area of strategic management.
Functional level strategy in marketing
Focuses on promotional techniques and their application, and on the price level optimization, problem of distribution (decisions about choosing distribution channels), structure of production, image of the company, public relations. Marketing strategies focus also on the product range optimization. Important part is taking action to achieve the intended market position. Managers promote sales, determine the advertising budget and the size of the sales staff.
Marketing strategy also deals with public policies (elimination of legal, cultural and organizational obstacles). Summing up marketing strategy is the most important element of the functional structure, for the company trying to gain a loyal customer.
Functional strategy in finance
Forms the capital structure of the organization through choice of share structure, debt and bonds) by optimizing financial costs. Debt policy deals with decision-making about the size of the loan and its forms.
The financial structure involves is also the enterprise asset management. In order to generate optimal revenues, the company establishes the structure of the investments of previously accumulated cash. It also provides access to resources. Dividend policy deals with the allocation of income between the shareholders and for development of the company.
Functional strategy of manufacturing
Strategic management in production deals with the development of manufacturing methods and improving performance of people and machines. It is essential for the production planning (determine the place, production volume and production methods). It has a direct relationship with the quality of the manufactured products, costs incurred during production does not play a significant role (are considered secondary).
Worth noting is other area of interest: automation, robotization and flexible manufacturing systems. In a situation of continuous technical progress, selection of appropriate manufacturing techniques provide a significant decision problem for managers. Managers must also take into account various government regulations. i.e. Environmental Protection Agency requirements)
Functional strategies in strategic human resources management
Human resource policy focuses on such aspects as: salaries, workforce selection and evaluation of the results of the work. Employee relations is another dimension of human resource policy. Also government regulations are taken into account (e.g. the Act on the rights of the citizens). Typing the respective managers, who will soon be included in the composition of the executives also apply in this strategy. This is directly related to the planning of vocational training.
Research and development strategy
Mainly deals with product development. Involves decisions regarding the modification of the existing products and where necessary needed to manufacture new ones on the basis of the available techniques. Research and development strategy is also focused on the licensing and conduct of the patent policy for the prevention of the use of the developed models or generate revenue from their sale. Strong commitment in research and development are used for the introduction on the market disruptive innovations and new products.
Advantages and disadvantages of functional strategies
- they are usually a complex of several operational level plans,
- by concentrating on one functional area employees and resources can be efficiently assigned to the tasks about which they have most knowledge and experience,
- employees feel that their abilities are used effectively,
- they are not effective in small businesses, because they require additional resources and staff,
- there may be conflict between overall corporate strategy and several specific functional strategies,
- functional managers can lose sight of the main objective of the company
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Author: Krzysztof Wozniak