Strategic Management

• A multidivisional corporation has several business units, each with its own business strategy, and each business unit has its own set of departments, each with its own functional strategy
• The orientation of a functional strategy

  Is dictated by its parent business unit's strategy
• Functional strategies to support a business unit following a low-cost competitive strategy


  • A different set of functional strategies would be needed
• Competitive strategies and functional strategies may need to vary from one region of the world to another
• When Mr. Donut expanded into Japan

  • It had to market donuts not as breakfast, but as snack food
  • Mr. Donut restaurants were located near railroad stations and supermarkets
  • All signs were in English to appeal to the Western interests of the Japanese
• Advanced manufacturing technology (AMT) is revolutionizing operations worldwide and should continue to have a major impact as corporations strive to integrate diverse business activities by using computer-assisted design and manufacturing (CAD/CAM) principles.
• Technologies contributing to increased flexibility, quick response time, and higher productivity

  • CAD/CAM
  • Flexible manufacturing systems
  • Computer numerically controlled systems
  • Automatically guided vehicles
  • Robotics
  • Manufacturing resource planning (MRP II)
  • Optimized production technology
  • Just-in-time techniques
• Such investments in advanced manufacturing technology

  Act to increase the company's fixed costs and could cause significant problems if the company is unable to achieve economies of scale or scope
• Product life cycle and manufacturing strategy

  1. Lot sizes as low as one in a job shop (one-of-a-kind production using skilled labor)

  2. Connected line batch flow (components are standardized; each machine functions like a job shop but is positioned in the same order as the parts are processed)

  3. Lot sizes as high as 100,000 or more per year for flexible manufacturing systems (parts are grouped into manufacturing families to produce a wide variety of mass-produced items)

  4. Dedicated transfer lines (highly automated assembly lines making one mass-produced product using little human labor)
• As the sales of a product increase, there will be an increase in production volume ranging from lot sizes as low as one in a job shop through connected line batch flow, to lot sizes as high as 100,000 or more per year for flexible manufacturing systems, and dedicated transfer lines.
• Mass customization


  Requires that people, processes, units, and technology reconfigure themselves to give customers exactly what they want, when they want it. Appropriate for an ever-changing environment.
• The dramatic swings in the fundamental elements of business (oil, electricity, and rare earth materials among many others) has drastically boosted costs, only some of which can be passed on to the customers in a competitive environment
• Basic purchasing choices


  • Multiple sourcing
  • Sole sourcing
  • Parallel sourcing
• Multiple sourcing


  • Forces suppliers to compete for the business of an important buyer, thus reducing purchasing costs
  • If one supplier cannot deliver, another usually can, thus guaranteeing that parts and supplies are always on hand when needed
• The common practice of accepting the lowest bid often compromises quality
• Sole sourcing


  Relying on only one supplier for a particular part
• Sole sourcing


  • Reduces both cost and time spent on product design thus improving quality
  • Can simplify the purchasing company's production process by using the just-in-time (JIT) concept
• Sole sourcing


  • Reduces transaction costs and builds quality by having the purchaser and supplier work together as partners rather than as adversaries
  • Results in the development of competitive capabilities, higher quality, lower costs, and better scheduling
• If a supplier is unable to deliver a part, the purchaser has no alternative but to delay production
• Multiple suppliers can provide the purchaser with better information about new technology and performance capabilities
• Small-and medium-sized family-owned companies

  • Try to avoid all external sources of funds in order to avoid outside entanglements and to keep control of the company within the family
• Large publicly held firms

  • Have long-term debt and keep a large amount of money in cash and short-term investments
  • Apple Inc. had more than a US$215 billion cash hoard by early 2016
• Financial leverage


  Using long-term debt to boost earnings per share, raising stock price and the overall value of the company
• Higher debt levels


  Deter takeover by other firms and lead to improved productivity and improved cash flows by forcing management to focus on core businesses
• High debt


  Can be a problem when the economy or the company falters and a company's cash flow drops
• Firm's financial strategy


  • Influenced by its corporate diversification strategy
  • Equity financing preferred for related diversification, debt financing preferred for unrelated diversification
• Selling patents


  • Companies sell patents for products they no longer wish to commercialize or are not part of their core business
  • Allows companies to raise money, while others buy patents to protect their competitive positions
  • Patent accumulators and patent trolls also buy patents for different purposes
• R&D strategy


  • Deals with product and process innovation and improvement
  • Deals with the appropriate mix of different types of R&D (basic, product, or process)
  • Deals with how new technology should be accessed—through internal development, external acquisition, or strategic alliances
• R&D choices


  • Technological leader, pioneering an innovation
  • Technological follower, imitating the products of competitors
• Nike, Inc.


  • Utilised a leader R&D functional strategy to achieve a differentiation competitive advantage
  • Spends more than most in the industry on R&D to differentiate the performance of its athletic shoes from that of its competitors
  • Simultaneously pursues a low-cost manufacturing approach
• An increasing number of companies are working with their suppliers to help them keep up with changing technology
• A firm cannot be competitive technologically only through internal development
• Strategic technology alliances


  One way to combine the R&D capabilities of two companies
• Open innovation (OI)


  A newer approach to R&D in which a firm uses alliances and connections with corporate, government, academic labs, and consumers to develop new products and processes
• BCG Growth-Share Matrix


  • Has some common attributes and common problems with the product life cycle
• Product moves through its perceived life cycle


  Categorized into one of four types for the purpose of funding decisions
• Question marks (problem children/wildcats)

  New products with the potential for success, but needing a lot of cash for development
• If a question mark is to gain enough market share to become a market leader and thus a star


  Money must be taken from more mature products and spent on the question mark
• Question mark


  • General Motors' decision to develop the Chevrolet Volt
• Stars


  Market leaders that are typically at or nearing the peak of their perceived product life cycle and are able to generate enough cash to maintain their high share of the market and usually contribute to the company's profits