‘Functional Strategy’ is the strategy or organisational plan adopted by each functional area, viz. marketing, production, finance, human resources and so on, in line with the overall business or corporate strategy, to achieve organisational level objectives. The functional strategy of a company is customized to a specific industry or strategic business unit (SBU) and is used to back up other corporate and business strategies.Each department develops certain objectives, which is to be enforced by employees, and aids in the achievement of final organisational goals.
For example, marketing strategy involves decisions related to pricing, selling, advertising and distributing a product. The aim could be to increase market share, venture into newer markets, penetrate existing markets, launch new products or deal with distributors/ competitors.
A company’s finance department typically decides on the capital structure, i.e.the mix of debt and equity funds to finance business operations. A functional strategy provides guidance reviewing operational income, evaluating various funding options and deciding on the capital structure mix that gives the lowest cost of capital.