Chapter 1: The Strategic Management Process
80.Describe some of the barriers to effective strategic decision making and the techniques for improvingdecision making.
0OPENING CASE: DELL COMPUTER
The Opening Case tells the story of Dell Computer, from its earliest days as a start-up in Michael Dell’s collegedorm room, to an extremely successful giant corporation, with estimated sales of over $30 billion in 2002. Dellhas the highest profitability in its industry, has maintained that leadership for several years, and even stayed profitable during the recent downturn in high technology industries.Dell’s phenomenal success is directly attributable to its direct-sales business model, which allows the firm to cutcosts and lower prices by eliminating the middlemen: wholesalers and retailers. Dell’s model also allows buyersto customize their computers quickly and easily, thus providing a high value-added product for a lower price thantraditional PC makers. Another important aspect of Dell’s business model is a just-in-time supply chain, with purchases made in great quantities, allowing the firm to further reduce inventory, obsolescence, and cost of rawmaterials.
This Opening Case provides an excellent opportunity to discuss many of the concepts that will beintroduced in Chapter 1. For example, Dell developed a business model that was unique and revolutionary at thetime. The model allowed the firm to add value for customers while keeping costs low, improving botheffectiveness and efficiency. Because the model was unique and led to improved effectiveness and efficiency, thefirm achieved a sustained competitive advantage. The business model was developed by Michael Dell, and thus provides an example of effective strategic leadership and vision. This case may be used to point out to studentsthat every firm, no matter how successful, is vulnerable to competitive attack. Although Dell dominates itsindustry today, so too did IBM dominate at one time, as did Apple, Osborne, and Atari. To highlight Dell’scurrent advantages, one avenue of discussion would involve asking students to describe conditions under whichDell might lose its competitive advantage.
I0.OverviewA0.Why do some organizations succeed and others fail? An answer can be found in the subject matter of this course. This course is about strategic management and the advantages that accrue to organizationsthat think strategically.B0.A
is a course of action that managers take in the effort to attain superior performance.C0.Understanding the roots of success and failure is not an empty academic exercise. Through suchunderstanding comes a better appreciation for the strategies that must be pursued to increase the probability of success and reduce the probability of failure.II0.Superior Performance and Competitive AdvantageA0.For businesses, superior performance is demonstrated through above-average profitability, ascompared to other firms in the same industry.
is typically measured using after-taxreturn on invested capital.
Show Transparency 1Figure 1.1: Return on Invested Capital in Selected Industries, 1997-2001
B0.The strategies that an organization’s managers pursue have a major impact on its performance relativeto its peers.C0.When a firm’s profitability is greater than the average profitability for all firms in its industry, it has a
over its rivals. The greater the profitability, the greater is its competitiveadvantage. A
sustained competitive advantage
occurs when a firm maintains above-average profitability for a number of years.D0.0A
describes managers’ beliefs about how a firm’s strategies will lead to competitiveadvantage and superior profitability. An appropriate business model is one component of a successfulstrategy.E0.Another component of a successful strategy is a favorable competitive or industry environment.0000
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