[Solution] Business-Level Strategy Formulation
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Author: Sarah Bennett
To put business-level strategies into action, managers integrate the activities of different functions in the organization. These include marketing and sales, accounting and finance, and manufacturing, among others. Permeating all activity is the organization's culture, which also needs to be managed.
Porter's Generic Strategies
Managers pursuing a differentiation strategy treat various organizational functions as follows:
- Marketing and sales focus on projecting a high-quality, high-value image of the organization's brand and the products/services.
- Accounting and finance exercises control over funds while permitting resources to flow toward innovation.
- Manufacturing emphasizes quality and meeting customer needs, even if this means higher costs. This may involve speeding up manufacturing so customers can get product when they want it, maintaining higher levels of inventory so product is always on hand for customers, or customization for special orders.
- The organizational culture must nurture creativity, innovation, and responsiveness to customers.
If managers are pursuing an overall cost leadership strategy, then . . .
- Marketing and sales focus on how basic products/services meet customers' needs at low cost. Advertising emphasizes the value that customers get for the price.
- Accounting and finance works to reduce costs wherever possible.
- Manufacturing is organized to make standardized product at high volume and low cost per unit. Products are designed not only to appeal to consumers but also to be easy to manufacture.
- The organizational culture must value efficiency.
Implementing Porter's Generic Strategies
| Functional Area | Differentiation Strategy | Cost Leadership Strategy |
|---|---|---|
| Marketing & Sales | Emphasize quality, uniqueness, brand image | Emphasize low prices, value for money |
| Finance | Fund innovation while maintaining controls | Minimize costs across all operations |
| Manufacturing | Focus on quality, customization, fast delivery | Standardize production, maximize efficiency |
| Organizational Culture | Nurture creativity and customer focus | Foster efficiency and cost consciousness |
The Miles and Snow Typology
The Miles and Snow typology also has implications for how different organizational functions are managed:
- Prospector strategy requires a flexible structure that encourages innovation, with decentralized decision-making and a culture that rewards creative thinking.
- Defender strategy typically involves a more centralized structure focused on operational efficiency, with tight controls and a stable organizational culture.
- Analyzer strategy requires a balance between stability and flexibility, often using a matrix structure that allows for both efficiency and innovation.
- Reactor strategy often lacks a consistent approach to organizational design and culture, responding to environmental changes as they occur.
Select the correct response(s) to the following question.
A CEO is using Porter's overall cost leadership strategy. What course of action is the manager likely to take? Check all that apply.
- Direct product designers to consider how products can be inexpensively made.
- Drive the value of efficiency throughout the organizational culture so that employees are highly cost-conscious.
- Direct manufacturing to standardize production so many products can be made at low cost.
- Direct the finance team to ensure that innovation gets sufficient funding.
View Explanation
An overall cost leadership strategy seeks a competitive advantage through low costs and low prices. Therefore, the CEO would tell company managers in each function to focus on efficiency, streamlining operations and reducing costs wherever possible. Sales and marketing managers must then communicate the message of affordability to customers.
Product innovation is a luxury that the organization pursuing an overall cost leadership strategy cannot afford. Where innovation occurs, it is in redesigning logistics, manufacturing, and delivery systems to operate more efficiently.
Select the correct response for the following question.
A manager is using Miles and Snow's prospector strategy. What action is the manager likely to take?
- Balance resource allocation between cost control and innovation.
- Reduce costs by not investing in innovation.
- Encourage creativity by allowing lower-level employees to make decisions.
View Explanation
The prospector strategy seeks a competitive advantage by finding new markets. Identifying and pursuing new opportunities requires creativity, so managers foster creativity however they can. One common way of doing so is to allow lower-level employees to make meaningful decisions.
