Functional strategy

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.

Fig. 1. Place of functional strategy in overall hierarchy of 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.

Principles for creating functional strategy

1. Identify Your Goals: Before creating a functional strategy, it is important to identify the goals and objectives of your organization. This will help ensure that the strategy is designed to meet the needs of the organization.
2. Evaluate Your Resources: It is important to evaluate the resources available to the organization in order to ensure that the strategy is feasible. This includes financial resources, personnel, and equipment.
3. Analyze Your Market: It is important to analyze the current market conditions in order to identify opportunities and threats. This will help the organization to identify potential areas for improvement and areas of risk.
4. Develop a Plan: It is important to develop a plan which outlines the steps that need to be taken in order to achieve the organization’s goals. This plan should include a timeline, budget, and resources needed to execute the strategy.
5. Monitor and Adjust: Once the strategy is implemented, it is important to monitor and adjust the strategy as needed. This will ensure that the strategy remains effective and is able to adapt to changing market conditions.

How to create functional strategy

A functional strategy is a plan that outlines the steps and activities necessary to achieve an organization’s goals. For example, a functional strategy for a manufacturing company could involve streamlining the production process, improving the quality of the products, and reducing the cost of production.

The first step in developing a functional strategy is to identify the goals and objectives of the organization. This should include a clear definition of the desired outcomes and any associated metrics that will be used to measure the success of the strategy.

Once the goals and objectives have been identified, the organization can develop a plan to achieve these goals. This plan should include a timeline, budget, and resources needed to implement the strategy.

Once the plan has been developed, it is important to evaluate the market conditions in order to identify potential areas of opportunity and risk. This includes assessing the competition, customer preferences, and any regulatory or legal issues that may affect the implementation of the strategy.

Once the market conditions have been evaluated, the organization can begin to implement the strategy. This may involve restructuring the organization, developing new processes and systems, and training employees. As the strategy is implemented, it is important to monitor progress and make any necessary adjustments.

Finally, once the strategy has to be evaluated and monitored in order to ensure that it remains effective and is able to adapt to changing market conditions.

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

Advantages

• Increased Efficiency: Functional strategies enable organizations to achieve better efficiency by focusing resources and efforts on specific areas. By focusing on specific tasks and activities, organizations can better streamline their processes, reduce waste, and increase productivity.
• Improved Quality: By applying functional strategies, organizations are able to better monitor and control the quality of their products and services. This increased focus on quality assurance can lead to improved customer satisfaction and loyalty.
• Cost Reduction: By streamlining processes, organizations are able to reduce costs associated with production, distribution, and marketing. This cost savings can be passed on to customers, leading to a competitive advantage.
• Increased Competitiveness: Functional strategies enable organizations to better compete in their respective markets by focusing on specific aspects of their business. This focus can provide organizations with an advantage over their competitors, resulting in increased sales and profits.
• Enhanced Organizational Structure: By implementing functional strategies, organizations are able to better organize their departments and activities. This improved structure can lead to increased efficiency, productivity, and overall organizational success.

Disadvantages

• Inflexibility: Functional strategies can be difficult to change or modify, which can limit an organization's ability to adapt to changing market conditions. This inflexibility can be costly if the strategy is no longer applicable to the current market.
• Lack of Creativity: Functional strategies can limit creativity and innovation, as employees are restricted to working within the established parameters of the strategy. This lack of creativity can lead to stagnation and a lack of new ideas and approaches.
• Over-Specialization: Applying functional strategies can lead to over-specialization, as certain departments or tasks may become overly focused on one particular area. This over-specialization can lead to a lack of diversity and a decrease in the overall productivity of the organization.
• Inefficiency: Applying functional strategies can lead to inefficiencies, as departments or activities may be duplicated or redundant. This duplication can lead to increased costs, lowered productivity, and decreased customer satisfaction.

See also:

• Strategic business unit

Functional strategy — recommended articles

Beam of objectives theory — Methods of restructuring — Revenue center — Personnel strategy — Nature of strategic management — Organizational strategy — Transformational outsourcing — Objectives of the organization — Innovation management

References

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• Wheel Wright, S. C. (1984). Manufacturing strategy: defining the missing link. Strategic management journal, 5(1), 77-91.

Author: Krzysztof Wozniak