Developing a Functional Strategy in 5 Steps: What It Is & How It Works
The lower you go in the organisation, the less familiar your teams are with strategy and how it is implemented regularly.
According to a recent study for GGP’s Strategy report, there is still a significant strategic mismatch between the C-suite and team members across business functions.
Even though several research and reports on unsuccessful tactics have been published, this critical strategy problem remains unanswered.
We hope that this article will help you understand how functional strategy fits into this picture, why organisations should care about functional strategy to drive top-level strategy execution, and how functional managers can develop better strategies aligned with corporate strategy.
Understanding the three strategic levels
We discussed strategy levels in full in this post, so here’s a quick overview of each one before we dig into functional-level strategy:
Corporate Strategy
Corporate strategies are high-level strategies that define the overall strategic direction of a corporation.
Business strategy
The direction and activities of individual business divisions within an organisation are defined by business strategy.
Functional strategy
Functional level strategies are those implemented at the operational level of an organisation to aid in the implementation of corporation (or business) level strategies.
In terms of strategic planning, a functional strategy should be the final strategy level developed throughout the strategic management process since it outlines “HOW are we going to support business objectives on the departmental level?”
Functional Level Strategy Types
Here are some typical functional-level strategies:
Human Resource Planning
The HR strategy should detail how the organisation will manage its human resources to accomplish its strategic objectives.
Financial planning
This approach emphasises how finances will fit with the company’s growth and innovation ambitions.
Strategy for Research and Development
R&D strategy should outline how R&D contributes to company strategy by building competencies via new products, services, and business models.
Strategy for Marketing
It might include anything from consumer identification to market research to customer acquisition via social media. Nonetheless, its primary objective should be to build demand for the company’s products and services.
Production Strategy
Supply chain management, operation planning, and the total manufacturing system should be the emphasis of production strategy. The primary goals are to improve quality, reduce manufacturing costs, and increase quantity.
The strategic priorities and goals of the Human Resources Management department, for example, will be very different from those of marketing managers. Most organisations will have many functional strategies, with one for each department.
Related content:
The 3 Levels of Strategy: The Difference & How to Apply Them
What Is Corporate Strategy And Its 4 Key Components
What Is Business Level Strategy (How To Create + Examples)
The 7 Best Business Strategy Examples I’ve Ever Seen (Comming Soon)
The connection between several levels of strategy
As previously said, the strategy levels you choose to apply in your organisation will be determined by its size and structure.
For example, if you’re a huge organisation with several businesses under one umbrella corporation, you’ll need all three strategy levels:
corporate strategy for the organisation as a whole business strategy for each of your distinct companies functional strategy for the many departments in each of the businesses.
Organisations with a single business unit, on the other hand, will not require a distinct corporate and business strategy. Instead, they will develop a combined corporate and business plan for the organisation, as well as functional strategies for each of its divisions.
The article will concentrate on this scenario and explain why functional strategies should be tightly linked to company strategy.
The functional strategy describes how to assist the execution of corporate goals and objectives, whereas the corporate strategy specifies the direction of the firm and what it intends to achieve.
The basic line is that company strategy isn’t only for CEOs. It promotes long-term corporate growth by assisting every functional department, from sales to manufacturing and customer success, in aligning with the organisation’s goals.
The significance of functional level strategy
New technology, automation, environmental programmes, and constantly shifting client expectations are reshaping the corporate world as we know it.
As firms battle for market share, those who achieve organizational-wide alignment will outperform their competitors.
The success of your organization’s functional-level plan is directly related to the success of its corporate-level strategy. Even the most well-thought-out corporate-level plans will fall flat if a functional-level strategy is neglected, misplaced, or poorly implemented (or all three).
Functional-level strategy is the direct concern of departmental managers, but that does not imply corporate-level strategists may disregard it. Delving into the specifics of several departmental strategic goals is most likely one of the most significant tasks of corporate-level strategists.
As an example, consider Apple’s functional strategy.
Steve Jobs well recognised the job when he took over Apple for the second time and reorganised it into a functional organisation.
Apple’s transition into a functional organisation was critical to the company’s success. HBR has the story.
Over the last two decades, Apple’s approach of leading with knowledge, giving voice to functions, and inspiring multi-dimensional cooperation has resulted in extraordinary innovation and success.
True, this Apple example is unique, and it may not be appropriate for many businesses. Nonetheless, it exemplifies well what a firm may achieve if it prioritises congruence between corporate and functional strategy.
Here’s another one. The corporation intends to introduce a new product in a new market. However, the most common pitfall that wrecks many product launches is a failure to proactively engage, align, and communicate with all teams. In reality, successful market penetration necessitates alignment throughout the whole organisation and its functional divisions.
This means that the sales strategy must be completely coordinated with the marketing department, while product development must collaborate with the team in charge of the manufacturing process. To guarantee success, all of these divisions must be in perfect rhythm with one another while being aligned with the company’s business goals.
5 stages to developing a functional plan that is aligned with corporate strategy
Strategic strategies at the business level are rather ethereal. They have a wide vision and high-level objectives/goals that might be difficult to convert into precise plans and benchmarks.
Organisations must break down their corporate strategy into clear and simple activities to execute their corporate strategy and accomplish these high-level goals. This is where functional strategy enters the picture.
A high emphasis on detail, measurement, and pragmatism characterises functional-level strategy. As a result, functional-level strategy creation necessitates far more communication and input both vertically and horizontally than corporate-level strategy development.
Recognising this truth is critical to integrating functional strategies with corporate strategy’s larger aims.
It might be difficult to achieve success with a functional approach. However, based on our client work experience, we put up some simple procedures that any strategist may follow to ensure good outcomes.
Step 1: Share and convey company strategy with leaders of functional units.
Leaders of functional units should be involved in the development of company strategy. To build an aligned functional plan, department leaders must grasp the corporate strategy as well as the goals and objectives that their department can support. However, that is not the only reason. You will be able to get their support more quickly if they are required to assist in the implementation of the plan they co-created.
If they were not part of the process, a strategy walkthrough meeting between organisational and functional leaders should take place to get everyone on the same page. We’ve already produced a guide for sharing and receiving comments on your plan, so if you’re unsure how to go about this process, connect with us.
As a fast checklist, all stakeholders should leave the discussion with a clear grasp of:
Each department will ‘own’ certain goals/objectives/KPIs.
The goals/objectives/key performance indicators (KPIs) that each department will ‘contribute to’. For example, if the head of sales controls the corporate strategy aim ‘Increase year-on-year revenue by x%’, the sales department may also require assistance from marketing, customer success, and so on.
Each goal/objective/KPI has its timetable.
A firm knowledge of what constitutes success for each goal/objective/KPI.
Step 2: Development of a functional strategy
The second stage should provide department heads time to interpret the corporate strategy objectives they own and begin to build a functional plan for how they may best accomplish these objectives.
Department leaders should pay special attention to the help they will require from other departments while developing a functional plan. At this point, you should complete the following:
Establish Objectives or Goals
Key Performance Indicators (KPIs) for each Objective/Goal
Make a project or a work plan for each objective/goal.
Every activity and decision-making in the plan is assigned ownership.
Establish timeframes and milestones.
Step 3: Foster communication
As previously said, two-way communication is important to the overall success of company strategy. Horizontal and top-down communication is often simpler to establish inside a hierarchy than clear 360-degree communication across the organisation.
It is critical to evaluate the requirements of all parties involved and to identify who should be participating. It is critical to create an atmosphere that encourages this communication while developing a successful functional-level strategic plan.
Step 4: Revision of functional and corporate strategy
At this stage in the process, corporate and functional executives should reconvene to exchange and assess functional strategy and its alignment with corporate strategy.
Here are some considerations to consider while evaluating functional strategy:
Is the scope of functional objectives too small or too broad?
Are your key performance indicators (KPIs) overly optimistic?
How does this functional goal relate to the overall business strategy?
Asking these questions can be the difference between a coherent and inefficient link between corporate and functional strategy.
To maintain close synchronisation between strategy levels, corporate executives should give feedback and ideas.
Step 5: Put the recommended adjustments to the functional strategy into action.
During the assessment process, you may have discovered that certain functional strategy objectives did not connect with corporate-level objectives.
As a result, even if departments effectively execute and fulfil these targets, the achievement of the corporate objectives will be impacted. If this is the case, the target should most likely be dropped.
Having objectives that do not connect with business objectives/goals can divert time and attention away from those that are important to the success of your company strategy.
Every action has an opportunity cost, which is why strategic alignment across strategy levels is critical.
Based on the comments from the previous stage, functional leaders should make recommended strategy changes.
Time to move from theory to practice
Strategic alignment between strategy levels is a business investment that can positively influence organizational alignment; improving efficiency, innovation, and profitability.
We hope this 5-step process will help you infuse some clarity into the whole process when planning your functional strategies.
When you’re ready to turn your plan into action, try to get in touch with us to help your teams achieve alignment and hit strategic goals faster.
