CHAPTER -7 FUNCTIONAL STRATEGIES Functional strategies deals with a relatively restricted plan designed to achieve objectives in a specific functional

area , allocation of resources among different operations within that functional area and coordination among different functional areas for optimal contribution to the achievement of the business and corporate level objectives .Functional strategies are derived from business and corporate strategies and are implemented through functional and operational implementation. A key task of strategy implementation is to align the activities and capabilities of an organization with its strategies. Strategies operate at different levels and there has to be coordination among strategies. Such coordination is a vertical fit. There also has to be coordination among different activities taking place at the same level. This is the horizontal fit.

When a lower strategy such as a functional strategy is aligned with the higher level strategy, in this case of the business strategy, then a vertical fit takes place. The vertical fit alone is not sufficient to integrate the strategic network. It is also essential to create a horizontal fit at the level of individual functional strategies. Creating horizontal fit means that all the operational activities performed in these areas should not work at cross purpose. There should be alignment among them. Vertical fit leads to functional strategies and their implementing and horizontal fit leads to operational implementation. Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, and information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each departments functional responsibility. Each functional department attempts to do its part in meeting overall corporate objective, and hence to some extent their strategies are derived from broader corporate strategies. Let us look at the various functional strategies. (A) FINANCIAL STRATEGIES (MONEY AS A RESOURCE):It needs following:-

(1)

Money as a controllable variable:It is impossible to control the market, but remaining a success in todays everchanging economy can be achieved with the use of successful corporate financial strategies. This involves making long-term goals and devising a business plan that will see those goals come to end. To do this, a business must be flexible and ready for change. Leeway

(2)

Control finances:Unfortunately, change is not always good. Without a secure plan in place, many businesses can become saddled with debt. One must anticipate changes and adjust

their corporate business strategies accordingly. This means examining cash flow, accounts receivable, and evaluating all assets and debts. Maintaining control of your finances can make you aware of any warning signs for trouble. (3) Long term and short term need of funds:Capital investment decisions are long term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. Working capital management deals with the short-term borrowing and lending (such as the credit terms extended to customers). (4) Maximizing shareholders value:Corporate value is enhanced when return on capital, a function of working capital management exceeds cost of capital, a function of capital investment. Corporate finance is closely related to managerial finance, which is slightly broader in scope, describing the financial techniques available to all forms of business enterprise, corporate or not. Questions which need to be asked for formulating financial strategies of a company are: How much capital would be needed by the company? Where will this money come from (e.g. equity or debt)? How can the company meet its short term financial needs? How can the company fund the long term financial needs? How do taxes (tax subsidies or penalties) affect corporate financial decisions? All these lead to the following financial strategies:1) Capital Structure 2) Capital Acquisition 3) Dividend Management

4) Capital Allocation

1) Capital Structure:-Capital structure of the company is the mix of equity v/s debt which should be such that it brings the greatest returns to the shareholders of the company. 2) CapitalAcquisition:- Capital acquisition deals with the cost of equity with that of debt and a good combination of both so that overall cost is reduced. 3) Dividend Management:-A company which pays a consistent and good dividend is much sought after by the investor and the company must as a policy retains a certain percentage of the profits and declare a good dividend every year. 4) Capital Allocation:-Capital allocation between the long term needs and the short term needs is done through a capital expenditure budget which is very important for a company.

(B)

HRM STRATEGIES (Man as a resource)

NEED:1) Right man on the right job:-The basis preparation and implementation of strategic HRM, Human Resource Management is closely identified with business strategy by many authors. In fact, HRM is typically distinguished from traditional personnel management by its concern with meeting business objectives in a strategic fashion. 2) Sustained focus on people as resource:-The essence of a HRM strategy is a sustained focus on the people who do the work of an organization. An HRM strategy is essential for maintaining quality customer care, attracting and retaining high quality staff and ensuring continued commitment from staff to continuously improving the organization. It entails the development of strategies to attract the right people to the organization with appropriate skills and competencies and strategies to retain them once recruited. These represent new challenges for the HR professional. 3) Attracting and retaining best talents:-Key issues in attracting and retaining staff are recruitment and selection procedures, promotion policies, training and development

opportunities, rewards and pay structures, equality policies, health and safety policies and our terms and conditions of employment. Most of these issues and others too are addressed in this HRM strategy. 4) People Management and development skills (PMDS):-Another important aspect of a HRM strategy is the development of people management skills in line managers at all levels within the organizations. As previously mentioned, PMDS is already helping to bring this new dimension to the work of managers by giving them a specific role in identifying the competencies and skills of their staff and their training and development needs. A key challenge for the organization is to ensure that these people management skills are valued, recognized and rewarded along with the more traditional and technical competencies of the job. 5) Low Attribution Rate:-We also have to recognize that we will be faced with constant staff turnover particularly at executive and clerical level. This is because of competition with the private sector. Here again, an effective HRM strategy has a crucial role to play. If it operates effectively it can make the organization a more attractive place to work by comparison with other departments and offices. This can have the effect of attracting staff to the organization and perhaps providing an incentive for others to stay who might otherwise be attracted to a career particularly in the private sector. To mention just one example the manner in which the organization operates family-friends policies could give it a competitive advantage from a staff perspective.

Some of the HRM strategies are:1) Quality of performance 2) Promotion System 3) Recruitment 4) Payment terms

1) Quality of performance:-Quality of individualsperformance has to be acknowledged and duly rewarded so that they put in their very best towards meeting the organizations goals. 2) Promotion System: Promotional system promotes merit v/s experience is also to be encouraged if fresh talent and enthusiasm and vigor of the youth are to be tapped. 3) Recruitment:-Recruitment policy should be such that we have the right man on the right job. 4) Payment Terms:-Payment terms should duly reward the sincere efforts of the employees and their present and future needs should be taken care of be the company (C) Marketing plans and policies Plans and policies related to marketing have to be formulated and implemented on the basis of the 4 ps of the marketing mix, i.e. product, pricing, place and promotion. The major issues and decisions relate to those marketing mix factors. Questions such as type of products, price of the product, type of distribution channel etc. have to be answered. Product:Product denotes the goods and services that an organization offers to its target markets. Plans and policies related to the products and markets need to be formulated and implemented on the basis of characteristics such as quality, features, choice of models, brand names, packaging, etc. Strategies dictate the manner in which product and market characteristics would be defined. Thus, competitive strategies may be implemented by stressing on high quality, better and more features. A white goods company, for instance needs to be constantly on the move in terms of new product offerings. The appliance division of godrej is well aware of this and it introduced nearly 100 new and variant products in 2007. This was done through product innovation and customization policies based on feedback from market research aided by back up support from R&D. Here is an illustration to show how a company uses a simple prescription to deal with threats in the external environment. Threatened by cheap imports from china Ebrahim Currim & Sons a 150- year old umbrella company making the well-known Stag

brand responded by innovative product policies. For the years the Stag had only three qualities: it was sturdy, affordable and of black colour. Then Currims, realizing the emergence of the new fashion- conscious Indian made product design changes to offer designer umbrellas by offering multi-coloured umbrellas. Then it came up with the idea of printing corporate advertisements and logos on its umbrellas. It went on to offer umbrellas with a built in high power flash light for those who walk unlit roads at night and models with prerecorded tunes for music lovers. Pricing:Price denotes the money that customers pay in exchange of goods and services. It is important to the seller because it represents the returns on efforts. To a buyer price is the value that is assigned to the satisfaction of needs and wants. Several price characteristics such as discount mode of payment, allowances, payment period, credit terms, etc. affect pricing plans and policies. When Tata Motors small car Nano was launched there was a major hype around its Rs 1-lakh basic price. In the past maruti 800 was also launched by maruti udyog (now Maruti Suzuki) on the low price platform in the 1980s. Pricing thus is a major theme in many product categories. Lower price for mobile calls made mobile telecommunication a common means of communication for Indians. Lower airfares by budget airlines made clients who travelled by AC-2 tier prefer flying by air. At the other end high prices known as the premium pricing policy too have a purpose. They denote differentiation from the viewpoint of the company and exclusive of the customer expressed by the phrase class versus mass luxury products such as high-end cars, cosmetics, apparels, or five star hotels need-premium pricing policy. The policy of setting high or low prices for their products is extensively used by the companies as a competitive tool. For instance, Nirma has consistently followed a low-price policy to compete with Hindustan unilever. Prices are often used as a determinant of market segmentation which in turn becomes the basis for creating different models of the same product. The market for soaps for instance is divided into premium and popular segments, representing the high priced and low-priced soaps.

Place:Place (or distribution)is the process by which goods or services are made available to the customers. Distribution plans and policies address themselves to issues such as the channels to be used, transportation, logistics, and inventory storage management and coverage of markets; etc. The use of distribution plans and policies in the marketing function as well as strategy implementation is important. The success of market-oriented strategies, especially in a competitive environment rests on the efficiency and effectiveness of the distribution system. Distribution assumes special importance in the case of a country such as India on account of its geographical size, cultural diversity, and its yet to be improved physical infrastructure. Companies such as Amul and Hindustan Unilever have worked for years on perfecting their distribution systems to reach the inaccessible areas in India. Promotion:Promotion deals with marketing communication intended to convey the company and product or service image to prospective buyers. The promotional mix consists of four activities: advertising, personal selling, sales promotion, and publicity. Promotional plans and policies have to consider the basic question of what promotional mix to adopt so that promotional activities can be used to implement strategies. Womens Horlicks is a health drink introduced by GlaxoSmithKline consumer healthcare targeted at women. The promotion policy envisages a promotional mix consisting of an awareness campaign through a doctor engagement programme a health information company website print advertising campaign and television celebrity advertising. The next example is of the promotion of a product called India. The incredible India print and media based, international and domestic promotional campaign was designed to market brand India as a tourism destination. The increasing competitiveness in several industries in India has prompted companies to adopt promotion as a strategic tool. Top brands in India such as Colgate, Vicks, Lux, Nokia, Britannia, Dettol, etc. have been able to grow and sustain owing to the power of promotion. Customer attention spans have been shrinking owing to the plethora of advertising campaigns in the media. Brands such as Bombay Dyeings, HMT or Iodex that fail to reinvent themselves suffer when they fail to catch customer

attention. The availability of the medium of cable television encouraged erstwhile small companies making products like Vicco creams, Lijjat papad, Pan Parag, Promise toothpaste, Nirma and several others to adopt a promotional policy of using TV advertising extensively. Internet advertising opened up yet another promotional media. Foreign brands such as Yahoo, eBay and Google have flourished in Indian markets while local brands such as naukri.com, Shaadi.com etc. have made strategic use of the internet to implement their promotional tactics. The nature of the product/industry also determines the type and mix of promotional methods used. The FMCG industry is typically a fruitful advertiser on the television. Among the FMCG industry, segments such as food and beverages and baby care feature prominently in TV advertising. In a fresh approach to using promotion creatively, Eureka Forbes adopted a deliberate sales promotion policy of door to door selling and demonstrations at exhibitions for its home improvement products. (D) OPERATIONS PLANS AND POLICIES: The plans and policies for operations are related to the production system operational planning and control and research and development (R&D). The corporate and business level strategies adopted determine the bases of competing (cost leadership/ differentiation/focus ) that in turn affect 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 operation systems structure and objectives which are used to determine the operations plans and policies. 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. Plans and policies related to production system are significant as they deal with vital issues affecting the capability of the organization 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 organization 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 vertical integration for import substitution. Reliance has made a success of its vertical integration expansion strategies. Operation Planning and Control: Plans and policies related to operations planning and control are concerned with aggregate production planning, material 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. Operation planning and control provides an example of an organizational activity that is aimed at translating the objectives into reality.