Functional Level Strategy: What Is It? Types & Examples?
After figuring out the purpose of your business and how you can compete in the market (corporate- and business-level strategies), it’s time to plan out your functional level strategy.
Each area of your business needs to be tied to a functional strategy so that each team can have specific plans and work toward the main business goals.
3 levels of business strategy
There are 3 main levels of business strategy: corporate-level strategy, business-level strategy, and functional-level strategy.
Why don’t we jump right into the functional-level strategy? Why do we have to read about 3 levels of strategies first? Because each of these strategies has its own functions regarding your business operations, and they’re all related.
Corporate level strategy
This is the highest level of strategy in your business. It has the ultimate influence on all the parts of your business—team goals, resources, priorities, expectations, etc.
Examples of corporate-level strategy include entering a new market, increasing market share, acquiring another company, etc.
Business level strategy
This is where the corporate strategies are broken down into more specific strategies. Business-level strategy focuses on creating a competitive advantage for your company in the market/industry.
Business-level strategy needs to align with the corporate strategies and help you achieve the overall business goals.
For example, if your corporate-level strategy is to increase market share, your business-level strategies can be:
- improve the quality of an existing product
- cut costs and charge lower prices
- introduce a new unique feature of a product
Functional level strategy
The functional-level strategy determines the daily operations of each team/department in your business. It supports the execution of business-level strategy and corporate-level strategy.
In other words, a functional strategy is like a short-term plan for specific areas of your business. It includes tactics, goals, tasks to achieve those goals, resources, and a definite timeline. Management needs to track progress, assign and delegate, as well as following-up with their team members.
Function-level strategies usually target the following 4 specific goals:
- Increase efficiency
- Improve quality
- Renew business
- Respond to customers
Let’s continue with the example in the above levels of strategies. To serve the corporate strategy of increasing market share, your functional-level strategy for different teams can be:
- R&D: research and develop new features, improve existing features
- Marketing: lower the budget spent for some expensive campaigns
Benefits of functional level strategy
Functional-level strategies help your company achieve the overall business goals, and tell you what needs to be done and in what ways. You need to align them with your organizational strategies, too.
In other words, functional strategies will give you an overall view of the big picture, as well as the smaller details within your business.
So, when it comes to setting functional-level strategies, you need to make them specific and actionable. It takes time and effort at first, but it’ll be much easier for you in the long term.
Characteristics of functional level strategy
Aligned with higher-level strategies
Functional-level strategies need to align with corporate-level strategies and business-level strategies. They have to serve the main goals of your business.
Specific and actionable
While corporate-level strategies need to be broad, functional-level strategies are much more detailed. The tactics, goals, and steps need to be specific and actionable. You may need particular metrics to measure the success of each step.
Matching your existing resources
It’s best to know what resources your business currently has (labor, materials, facilities, etc). And your functional-level strategies need to match the resources.
In other words, they need to make the best use of what you have. And you don’t want to create strategies based on things you don’t have or can’t afford.
Measurable
Functional level strategy needs to be measurable so that you can monitor your progress and make adjustments accordingly.
While it’s important to track your progress closely, you need to measure aspects that reflect how you’re striving towards corporate-level strategies and business-level strategies.
If you try to measure everything, you’ll be overwhelmed with unnecessary data and information.
Strategies for functional areas of your business
Below are some strategies for the main functional areas that keep a business running. Understanding what strategies you can implement in each area will give you some ideas for your strategy-planning sessions.
Marketing
Marketing includes the whole process of identifying customer needs and creating value for customers to capture value from them in return. The goal is to build and strengthen long-term relationships with customers.
Marketing strategies include steps to improve products, set prices, distribute and promote them, etc.
To implement marketing strategy, you can study your competitors using SWOT analysis (Strength, Weakness, Opportunity & Threats). You need to plan for different channels of marketing—whether it’s social media or direct marketing.
Finance
This includes the steps to manage your business finance—from raising capital and seeding funds, budgeting, and investing to acquiring assets and evaluating business net worth, etc.
Human resources
These strategies include recruitment, selection, hiring, training, development, team building, employee engagement and retention.
Production
Production strategies focus on enhancing product quality and reduce production costs through managing manufacturing and operating system, as well as logistics and supply.
Research and development
Research and Development (R&D) strategies cover steps to improve existing products and develop new ones.
R&D strategies are often related to Cost Leadership and Differentiation strategies. If your company intends to occupy a certain segment, you must find out the right product for that segment and how to beat existing competitors, whether with a unique difference or with a cheaper price.
Examples of functional level strategy
If your corporate-level strategies include improving quality, efficiency, and delivery, then the functional-level strategies for different departments within your business might be:
Research & development
Quality: Design products that bring innovative changes to customer experience
Efficiency: Simplify the research & development processes
Delivery: reduce time to market by implementing parallel design techniques
Marketing
Quality: Offer helpful deliverables
Efficiency: Target the right group of customers for the next marketing campaign
Delivery: React to the seasonal needs timely
Human resources
Quality: Offer monthly training sessions
Efficiency: Minimize the costs of hiring and onboarding
Delivery: Find effective sources to hire and train employees timely to meet business demands
Purchasing
Quality: Find suppliers that provide reliable and high-quality supply
Efficiency: Establish relationships with suppliers and negotiate the best prices
Delivery: Stock enough and avoid redundancy
Operations
Quality: Improve the quality of the production process
Efficiency: Minimize time wasted in inefficient procedures
Delivery: Minimize delays in production
Accounting
Quality: Minimize errors when inputting information and providing them to other departments
Efficiency: Automate the accounting process
Delivery: Provide real-time access to data
Conclusion
Functional-level strategies are difficult to set because they require lots of specific planning. But they’re there to align the goals of each area of your business with your company’s goals. And you can also have a better view of the operations of each department in your business.
Remember to set corporate-level and business-level strategies before setting functional-level strategies!
