Functional Strategy - Definition, Importance & Example
What is Functional Strategy?
Functional Strategy is the strategic plan adopted by each functional area in the value chain of the organization like marketing, production, finance, human resources, IT etc. to implement and align with the overall business or corporate strategy/vision for achieving organizational level objectives.
The value chain of a company comprises of various departments and functions like core functions like finance, marketing, sales and auxiliary functions like HR, IT etc. All these functions may align with the overall organization vision or strategy but each department has its own needs and targets for which they need more refined finer strategy. This finer strategy which is specific to that particular function to achieve their targets becomes functional strategy.
The functional strategy of a company is customized to a specific industry or strategic business unit (SBU) and is used to back up other corporate and business strategies. Each department develops certain objectives, which is to be enforced by employees, and aids in the achievement of final organizational goals.
Importance of the Functional Strategy
The overall strategy or vision of a company might be at a high level e.g. to become a top manufacturing company in Asia but at a functional level the strategy needs to defined to achieve the overall vision.
- The HR department would make a functional strategy to hire more skilled talent to produce high quality products to achieve the strategic vision of the organization.
- A company’s finance department typically decides on the capital structure, i.e. the mix of debt and equity funds to finance business operations.
A functional strategy provides guidance reviewing operational income, evaluating various funding options and deciding on the capital structure mix that gives the lowest cost of capital. This way different functions in the value chain of an organization will have their own strategies to achieve the larger goals of the company.
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Functional Strategy Example
Marketing strategy involves decisions related to pricing, selling, advertising and distributing a product. The aim could be to increase market share, venture into newer markets, penetrate existing markets, launch new products or deal with distributors/ competitors. The overall strategy of the company can be to become number 1 company in terms of sales for multiple geographies. The functional strategy for marketing in the example aligns with that vision but has its own refined approach to achieve marketing objective to help the company overall.
Hence, this concludes the definition of Functional Strategy along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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