Functional strategy determines the tasks and activities of a business area, with departments working together to achieve overall goals. It can be used in manufacturing, finance, research and development, and other areas. It helps make decisions on product lines, capital structure, and other aspects of the business. Each department has its own guidelines, and an organizational strategy sets overall goals for the company.
A functional strategy is one that determines the task and activities of a given business area. Owners and managers establish certain rules and guidelines that employees must follow. Each department operates within these guidelines, with all departments working together to achieve the company’s overall goals. Common areas where a company can execute a functional strategy include manufacturing, finance, or research and development departments. An organizational strategy can also be functional.
Shop floor strategies often fall under the “make versus buy” analysis. Each product or product line is reviewed by owners and managers, who use specific rules to make this decision. Functional strategy helps dictate how to decide the best alternative for new or existing products. For example, the strategy may involve reviewing available materials, examining the ability of the labor in the current market, and reviewing costs for outsourcing the product for manufacturing purposes. The result leads to an informed decision on how a company will go about manufacturing the product.
A company’s finance department typically makes decisions about capital structure. The capital structure includes a combination of debt and equity funds to finance large corporate operations. A functional strategy provides guidance on how to review operating revenues and decide what portion should be reinvested in the business. From here, finance employees then look at different funding options to fund the cash shortfall from operations. Selecting the lowest cost of capital from the mix of financing options is typically the goal of a functional strategy.
Other departments may also work within a functional strategy. Strategy best describes any set of rules that provide specific direction to move the business forward. The research and development department, for example, may have guidelines on how to grow the company’s product pipeline. HR departments focus on hiring and retaining skilled workers. The accounting department has a schedule for processing information and closing the books each month to meet the company’s goals.
Through each of these individual functional strategic divisions, a company can achieve its overall business goals. Executives can focus a company’s attention through its organizational mission or other goal-setting statements. This provides guidance for each department on how to proceed with the development of their strategies. An organizational strategy typically has the overall goals of building the structure of the business, training staff to complete tasks, and establishing wages that are competitive in the marketplace. External legal advice may be required to complete some of these items.
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