According to Porter, there are five forces which affect the level of competition for any industry.He classified these five forces as rivalry, customers, suppliers, entrants and substitutes. He alsosuggested three strategies which help an organization to gain an edge over its competition. Let usnow look at the three strategies suggested by Porter –1) Cost leadership strategy2) Differentiation strategy3) Focused strategy.Apart from the above strategies, some companies follow an integrated strategy which is acombination of two or more of the above strategies.
3. Functional Strategy
The functional level of an organization refers to the level of the departments or operatingsections. The strategies for the functional unit relate to the business processes for that function.Functional level strategies may differ from one function to the other depending upon whether thefunction relates to marketing, finance, HR or operations. These strategies devise the way forwardfor that function by realigning the business processes of the function and increasing the savingsor profits. The functional units also serve to input the necessary details for the business unit levelor corporate level strategies. Once these strategies are decided by the top brass, the functionalunits prepare action plans to implement these strategies at their level.For functional strategies to be more effective, it is important to ensure that the organization has asound functional structure. A good functional structure is based on the elements of clarity,specialisation, co-ordination, skill development and suitability. If the functional structure iscohesive, it contributes to better implementation of the functional strategy. On the other hand, if the employees are unclear about the function’s structure, they are likely to be less productive asthey are unsure about their standing in the organization. An organization can classify itsfunctions on the basis of product departments, geographical departments, strategic business units,
2. Prospective equity investors and lenders, to decide whether or not to invest.3. Investment analysts, money managers, and stockbrokers, to make buy/sell/holdrecommendations to their clients.4. Rating agencies (such as Moody's, Standard & Poor's, and Dun & Bradstreet), to assigncredit ratings.5. Major customers and suppliers, to evaluate the financial strength and staying power of thecompany as a dependable resource for their business.6. Labor unions, to gauge how much of a pay increase a company is able to afford in upcominglabor negotiations.7. Boards of directors, to review the performance of management.8. Management to assess9. Corporate raiders, to seek hidden value in companies with under priced stock.10. Competitors, to benchmark their own financial results.11. Potential competitors, to assess how profitable it may be to enter an industry.12. Government agencies responsible for taxing, regulating, or investigating the company.13. Politicians, lobbyists, issue groups, consumer advocates, environmentalists, think tanks,foundations, media reporters, and others who are supporting or opposing any particular publicissue the company's actions affect.14. Actual or potential joint venture partners, franchisors or franchisees, and other businessinterests who need to know about the company and its financial situation.