A functional strategy is one that dictates the task and activities of a certain business area. Owners and managers make up certain rules and guidelines for employees to follow. Each department operates by these guidelines, with all departments working together to achieve the overarching company goals. Common areas where a company may implement a functional strategy include the production, finance, or the research and development departments. An organizational strategy may also be functional.
Production department 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. The functional strategy helps dictate how to decide the best alternative for new or existing products. For example, the strategy may involve reviewing available materials, looking at the labor skill in the current market, and reviewing the costs for outsourcing the product for production purposes. The result leads to an informed decision on how a company will proceed with product production.
A company’s finance department typically makes decisions on capital structure. The capital structure includes a mix of debt and equity funds to finance large business operations. A functional strategy provides guidance on how to review operational income and decide what portion should be reinvested into the company. From here, finance employees then look to different funding options to fund the shortfall in cash from operations. Selecting the lowest cost of capital from the mix of funding options is typically the goal of a functional strategy.
Other departments can also work under a functional strategy. The strategy best describes any set of rules that provide specific guidance for moving the company forward. The research and development department, for example, can have guidelines on how to increase the company’s product pipeline. Human resource departments have a focus on hiring and retaining skilled workers. The accounting department has a schedule for processing information and closing the books each month, meeting the company’s goals.
Through each of these individual functional strategy divisions, a company can meet its overarching business goals. Executives can set a company’s focus through its organizational mission statement or other goal-setting statements. This provides guidance for each department on how to proceed with developing their own strategies. An organizational strategy typically has the overarching goals of building the company’s structure, training staff to complete tasks, and setting competitive wages in the market. Outside legal advice may be necessary to complete some of these items.