Functional Strategy is a critical aspect of strategic e-commerce platforms (place), and running social
management. It involves the development and media influencer campaigns (promotion).
implementation of plans by different functional areas within
an organization to support the overall business strategy. 2. Financial Strategy
Each functional strategy ensures that resources are ➔ involves managing financial resources to support
optimally allocated and aligned to achieve organizational organizational goals.
goals.
Today, we will explore the major functional strategies: Key Components
marketing, financial, research and development, operations, ● Capital Structure: Balancing debt and equity to
purchasing, logistics, human resource management, and minimize costs and risks.
information technology strategies. ● Budgeting: Allocating financial resources effectively
across departments and projects.
1. Marketing Strategy ● Investment Decisions: Choosing profitable ventures
and projects that align with strategic goals.
➔ focuses on identifying and meeting customer ● Risk Management: Identifying, analyzing, and
needs to achieve business objectives. mitigating financial uncertainties.
Example
Key Components
A firm may focus on retaining earnings to fund expansion
● Target Market: Identifying specific customer groups
rather than relying on external financing to maintain financial
based on demographics, preferences, and behaviors.
stability.
This involves segmenting the market into smaller, more
manageable groups and tailoring marketing efforts to
3. Research and Development (R&D) Strategy
their unique characteristics. Common segmentation
➔ R&D strategy centers on innovation to create new
criteria include age, income level, geographic location,
products or improve existing ones.
and lifestyle.
● Value Proposition: Crafting a unique offering that Key Components
differentiates the product or service in the market. The ● Innovation Focus: Balancing incremental
value proposition explains why a customer should improvements and groundbreaking developments.
choose your product over competitors. It often ● Technology Utilization: Adopting cutting-edge
highlights benefits such as quality, innovation, price tools and methodologies for product development.
advantage, or superior service. ● Collaboration: Partnering with academic
● Marketing Mix (4Ps): The marketing mix is a set of institutions, tech companies, or government bodies
controllable elements that help execute the marketing for shared expertise.
strategy effectively: ● Resource Allocation: Ensuring sufficient funding
○ Product: Decisions about design, features, and skilled personnel for R&D initiatives.
packaging, and branding. Example:
○ Price: Strategies for pricing products to Pharmaceutical companies invest heavily in R&D to develop
align with customer expectations and new drugs and treatments, often requiring years of testing
business objectives. and approvals.
○ Place: Distribution channels used to
deliver the product to customers, such as 4. Operations Strategy
online platforms, retail stores, or ➔ optimizes processes to ensure efficiency and
wholesalers. quality in production or service delivery.
○ Promotion: Communication tactics,
including advertising, public relations, Key Components:
sales promotions, and digital marketing, to ● Process Design: Structuring workflows and
inform and persuade customers. systems to maximize efficiency.
● Market Research: Conducting surveys and analysis to ● Capacity Planning: Ensuring resources align with
understand customer demands and market trends. This production demands to avoid bottlenecks.
helps in anticipating changes in the market and ● Quality Management: Implementing standards like
adapting strategies proactively. ISO certifications to maintain consistency.
Practical Example: ● Cost Management: Using tools like activity-based
➔ Imagine a company that sells organic skincare costing to control and reduce expenses.
products. Its target market includes Example
health-conscious individuals aged 25-45. The value Implementing lean manufacturing practices such as Six
proposition emphasizes "natural, cruelty-free Sigma to minimize waste and improve process efficiency.
skincare solutions for radiant health." They employ
a marketing mix by offering eco-friendly packaging 5. Purchasing Strategy
(product), pricing slightly above mass-market ➔ focuses on acquiring goods and services efficiently.
brands to signal premium quality (price), selling via
Key Components protect digital assets and customer information.
● Supplier Relationships: Developing long-term ● Digital Transformation: Embracing technologies
partnerships to ensure reliability. like Al and blockchain to modernize processes.
● Cost Reduction: Sourcing materials at the best Example:
prices without compromising quality. Implementing cloud computing solutions to enable flexible,
● Quality Assurance: Establishing metrics and remote work environments and scalability for business
benchmarks for purchased items. growth.
● Ethical Sourcing: Ensuring suppliers adhere to
ethical and environmental standards.
Example Corporate Governance
Adopting a global sourcing strategy to procure materials Corporate governance refers to the system by which
from low-cost regions while ensuring compliance with companies are directed and controlled.
quality standards. It encompasses the practices, policies, and structures that
guide corporate behavior and decision-making, ensuring
6. Logistics Strategy accountability and transparency to stakeholders.
➔ Logistics strategy deals with the planning and Effective corporate governance is crucial in fostering trust
management of supply chain activities. and integrity in financial markets and contributing to
economic stability.
Key Components
● Transportation Management: Selecting efficient 1. Definition and Importance of Corporate Governance
carriers and routes to reduce costs and delivery Corporate governance is the framework of rules,
times. relationships, systems, and processes within and by which
● Inventory Optimization: Using demand authority is exercised and controlled in corporations.
forecasting to maintain adequate stock levels. Key Goals:
● Warehousing Solutions: Strategically locating ● Protect the interests of shareholders and
facilities for efficient distribution. stakeholders.
● Technology Integration: Employing systems like ● Ensure transparency, accountability, and fairness in
RFID for tracking and automation. business operations.
Example: ● Minimize risks of fraud and unethical behavior.
Using just-in-time (JIT) inventory systems to reduce holding Importance:
costs and improve cash flow. ● Enhances investor confidence.
● Facilitates access to capital markets.
7. Human Resource Management (HRM) Strategy ● Encourages sustainable corporate performance.
➔ HRM strategy aligns human capital with ● Protects against mismanagement and corporate
organizational objectives. scandals.
Key Components 2. Principles of Corporate Governance
● Recruitment and Selection: Implementing ★ Accountability: Ensuring management is
strategies to attract and retain top talent. accountable to the board and the board to
● Training and Development: Offering continuous shareholders.
learning opportunities to improve skills. ★ Transparency: Providing timely, accurate, and
● Performance Management: Using appraisal clear disclosure of material matters.
systems to assess and motivate employees. ★ Fairness: Treating all stakeholders, including
● Diversity and Inclusion: Promoting a culture that minority shareholders, equitably.
values different perspectives. ★ Responsibility: Ensuring ethical conduct and
Example: compliance with laws and regulations.
Developing leadership training programs to prepare future
managers and create a talent pipeline. 3. Key Components of Corporate Governance
● Board of Directors:
8. Information Technology (IT) Strategy ○ Role: Oversight of management, strategic
➔ IT strategy leverages technology to enhance guidance, and ensuring adherence to
business operations and gain competitive governance practices.
advantage. ○ Composition: Balance between executive
and non-executive directors, with a
Key Components significant presence of independent
● Infrastructure Management: Ensuring reliable and directors.
scalable IT systems to support operations. ● Management: Role: Day-to-day operations and
● Data Analytics: Leveraging big data for strategic implementation of strategic decisions.
decision-making and market insights. Responsibility: Providing accurate information to
● Cybersecurity: Implementing robust measures to the board and executing the board's directives.
● Shareholders: ● Balancing short-term pressures with long-term
○ Rights: Voting on key matters, receiving objectives.
dividends, and holding the board ● Addressing conflicts of interest within boards.
accountable. ● Ensuring diversity and inclusivity in leadership.
○ Engagement: Active participation in ● Adapting to evolving regulatory and technological
general meetings and decision-making landscapes.
processes.
● Stakeholders: Conclusion: Corporate governance is a cornerstone of
○ Includes employees, customers, suppliers, responsible corporate behavior.
and the community. It ensures that companies operate in a manner that is
○ Importance: Their interests should be ethical, transparent, and accountable to their stakeholders.
considered in governance to ensure By adhering to sound governance principles, companies can
long-term sustainability. achieve sustainable growth and contribute positively to
society and the economy.
4. Mechanisms of Corporate Governance
● Internal Mechanisms: Discussion Questions:
○ Board structure and committees (audit, 1. Why is corporate governance essential for maintaining
nomination, remuneration). investor confidence?
○ Internal controls and risk management 2. How can companies balance the interests of shareholders
systems. and other stakeholders?
○ Codes of conduct and ethical guidelines. 3. What lessons can be learned from major corporate
● External Mechanisms: governance failures?
○ Market regulations and legal frameworks.
○ Activism by institutional investors and
proxy advisory firms. Introduction to Corporate Governance
○ Media scrutiny and public opinion.
Corporate governance refers to the system of rules,
5. Global Perspectives on Corporate Governance practices, and processes by which a corporation is directed
● United States: Focus on shareholder primacy, with and controlled. It involves balancing the interests of a
regulations like the Sarbanes-Oxley Act company's stakeholders, such as shareholders,
emphasizing financial transparency and management, customers, suppliers, financiers, government,
accountability. and the community. Corporate governance ensures
● United Kingdom: Principles-based approach accountability, fairness, and transparency in a company's
under the UK Corporate Governance Code. relationship with all its stakeholders.
● Germany: Dual-board structure comprising a
management board and a supervisory board. Importance of Corporate Governance
● Japan: Emphasis on stakeholder engagement, 1) Accountability: Establishes mechanisms for
including keiretsu relationships (corporate holding management accountable to stakeholders.
networks). 2) Transparency: Encourages open communication
and disclosure of relevant information.
6. Corporate Governance Failures and Lessons Learned 3) Sustainability: Promotes ethical decision-making
Examples: and long-term business success.
● Enron (2001): Lack of transparency and fraudulent 4) Risk Mitigation: Minimizes risks through effective
practices. oversight and internal controls.
● Lehman Brothers (2008): Risk management failures 5) Investor Confidence: Enhances trust, which is
and excessive leverage. critical for attracting and retaining investors.
● Volkswagen (2015): Emissions scandal highlighting
ethical lapses. Key Principles of Corporate Governance
Key Lessons: 1. Accountability: Clear lines of accountability ensure
● Strengthen internal controls and audits. that all parties understand their roles and
● Foster a culture of ethics and integrity. responsibilities.
● Enhance board oversight and independence. 2. Transparency: Accurate and timely disclosure of
financial and operational information.
7. Benefits of Effective Corporate Governance 3. Fairness: Equitable treatment of all stakeholders,
● Improved financial performance. including minority shareholders.
● Lower cost of capital. 4. Responsibility: Commitment to ethical standards
● Enhanced reputation and trust among and social responsibilities.
stakeholders.
● Greater resilience to external shocks.
8. Challenges in Corporate Governance
Key Components of Corporate Governance 2. External Mechanisms:
1) Board of Directors: ● Market Discipline: Pressure from investors and
● Acts as the governing body of the corporation. analysts.
● Includes executive and non-executive directors to ● Regulatory Oversight: Compliance with laws and
provide oversight and expertise. listing requirements.
● Duties include setting strategic goals, appointing ● External Audits: Independent evaluation of financial
key executives, and monitoring performance. health.
2) Management: Challenges in Corporate Governance
● Responsible for the day-to-day operations of the 1. Conflicts of Interest: Misalignment of interests among
company. stakeholders.
● Implements strategies approved by the board and
ensures alignment with corporate objectives. 2. Lack of Independence: Boards that are overly influenced
by management or dominant shareholders.
3) Shareholders: 3. Insufficient Oversight: Weak internal controls or lack of
● Owners of the company who exercise their rights expertise in the board.
through voting in general meetings. 4. Globalization: Managing diverse stakeholder
● Provide capital and expect a return on investment. expectations across jurisdictions.
5. Ethical Dilemmas: Balancing profitability with ethical and
4) Stakeholders: social responsibilities.
● Broader group, including employees, customers,
suppliers, and the community. Best Practices in Corporate Governance
● Corporate governance ensures their interests are 1. Diverse and Independent Boards:
considered. ● Ensures a mix of skills, perspectives, and
independence to enhance decision-making.
5) Auditors: 2. Effective Risk Management:
● Provide independent assurance on the company's ● Implements robust systems to identify, assess, and
financial statements and internal controls. mitigate risks.
3. Strong Ethics and Values:
6) Regulatory Framework: ● Develops a corporate culture that prioritizes
● Companies must comply with laws, regulations, integrity and compliance.
and standards, such as securities laws and 4. Stakeholder Engagement:
corporate governance codes. ● Actively involves stakeholders in decision-making
processes.
Models of Corporate Governance 5. Continuous Improvement:
1. Anglo-American Model: ● Regular reviews of governance practices to adapt
● Focused on shareholder primacy. to changing needs.
● Strong emphasis on financial performance and
shareholder returns.
2. Continental Model:
● Balances the interests of shareholders and other
stakeholders.
● Common in European countries with a focus on
long-term sustainability.
3. Asian Model:
● Often involves significant family ownership or state
involvement.
● Emphasizes relationships and loyalty alongside
profitability.
Corporate Governance Mechanisms
1. Internal Mechanisms:
● Board Committees: Specialized committees such
as audit, nomination, and remuneration
committees.
● Internal Controls: Policies and procedures to ensure
compliance and mitigate risks.
● Performance Monitoring: Regular evaluation of
management performance.
