Functional-level strategies are usually formulated by management after the higher level corporate and business strategies were already developed. Functional-level strategies should support business level strategies. Each functional area should be engaged. There can’t be implemented a strategy for one isolated area, because all functional-level strategies result in effectiveness of the major strategy only if interrelated and complementary.
Functional strategies have two major roles: they become a support to the overall business strategy and determine how functional managers should act to provide more effective performance in their respective functional areas (“Formulation of Functional Strategy”).
Functional area strategy such as marketing, financial, production and Human Resource are based on the functional potential of a company. First of all, for every functional area the basic sub areas should be determined. Then for every of these functional sub areas the content of “functional strategies, important factors, and their importance in the process of strategy implementation is identified” (“Formulation of Functional Strategy” 3).
Functional-level strategies must be divided into operative functional plans and tactics that complement each other. In such a way, functional management can communicate strategies. Various factors may influence the choice of the exact functional strategy, e.g. environmental factor or primary organizational strategies. Nevertheless, the actual process of choice is affected by both objective and subjective factors.
The marketing strategy formulation is the process of analyzing market opportunities, determining target markets, making the marketing mix, and managing the marketing effort (“Formulation of Functional Strategy”). When introducing a new product company may choose either to skim or penetrate the target market. While skimming, the relatively high prices are established, as the goods are designed focusing on customers who pay more attention to the products’ novelty than to its cost. For example, the initial cost of Internet access was set very high. Each downloaded kilobyte was charged. As the initial sales were very low, the high cost in some way served as an attraction for the buyers who could afford it. In the process of penetration organization sets a relatively low price of a new product. This is done so that potential buyers could afford the purchase and be eager to try the product (Audhesh et al.).
The financial strategies of a company are connected to several accounting concepts that are basic to strategy implementation. They are: acquisition of needed sources of fund, development of estimated financial budgets, funds management, and evaluating the value of a business. Some examples of financial strategy implementation steps are:
- To raise capital with short or long-term debt, common stock.
- To lease or purchase fixed funds.
- To define a proper dividend payout ratio.
- To prolong the period of accounts receivable.
- To set an interest discount on accounts during a certain period.
- To decide on the amount of cash that should be kept on hand (“Formulation of Functional Strategy” 10).
Often the additional capital is needed for a successful strategy implementation. In addition, determination of the appropriate mix of debt and equity in a company’s capital structure is vital for a successful strategy implementation.
Production strategies are related to the production system, strategic planning and operational control, research and development (R&D). The strategy implemented influences the nature of product or service, the target markets, and the manner in which the markets are served. Production strategies are very important, as they deal with significant issues affecting the ability of a company to reach its objectives. The example of production strategy may be Lakshmi Machine Works organisation, where operation policy related to the product range is concentratedd at the successive extension of its textile machinery range (“Formulation of Functional Strategy” 14). It is achieved due to the policy of mastering the production process by acquisition of technology, and adapting to consumers’ needs.
Taking into account the constant changes that affect logistics activities, such as new technologies development and industry initiatives, formulating and applying a durable logistics strategy is of vital importance. The success of supply management systems’ implementation requires “a change from managing individual functions to integrating activities into key supply chain processes” (“Formulation of Functional Strategy” 17). It comprises collaborative work between customers and suppliers, joint products developing, common systems. Moreover, a key requirement for successful implementing of supply chain is network of information sharing and management. The best way for partners to stay in touch, in order to share information, is through electronic data interchange and making decisions in a timely manner.
Nowadays in plethora of organizations human resources are regarded as a source of competitive advantage. It is considered that distinctive competencies can be acquired through highly developed workers mastery, distinctive organizational cultures, and administration processes. While formulating human resources strategies, needs of the staff should be assessed, costs for alternative strategies estimated, and staffing plan developed. This plan should include decisions how best to manage growing healthcare insurance expenditures and motivate workers and management. For human resources strategy to be effective it must develop steps of improving employees’ skills and give them proper working background to ensure high efficiency (Christiansen, Castro, and Higgs). It includes choosing the most professional personnel, motivating workers to perform well aiming at corporate goals.
Usually if company achieves a noticeable competitive advantage, it is all due to some minor changes at functional level. Functional-level strategies, if professionally implemented, lead to company’s higher profitability and competitiveness, products and services quality improvement, increase of innovation, recognition among the customers, raise the level of clients’ satisfaction.