introducing strategy

in late 2003 Michael Dethe founder of Dell Computers, announced that the company was planning
a big push into consumer electronics. Since its foundation some 20 years earlier the company's
business had been predominantly the sales of computer products to corporate customers. Now it
planned to expand its direct consumer sales and extend its products beyond PCs and laptops into
mainstream consumer electronics. Opportunities were arising as more consumer items became
"digitised", an area in which Dell had considerable experience. But some commentators doubted
Dell's ability to make such a big strategic leap.

All organisations are faced with the challenges of strategic development: some from a desire to
grasp new opportunities, such as DEll, others to overcome significant problems. This book deals
with why changes in strategic direction significant problems. This book deals with why changes in
strategic direction take place in organisations, why they are important, how such decisions are
taken, and the concepts that can be useful in understanding these issues. This chapter is an
introduction and explanation of this theme, and deals with the questions of what is meant by
estrategy and estrategic management, why they are so important and what distinguishes them
from other organisational challenges, tasks and decisions. in discussing these issues it will become
clearer how the book deals with the subject area as a whole. The chapter draws on the Dell
illustration for the purposes of discussion and, as the book progresses, other such illustrative
examples are used to help develop discussion.

One other point should be made before proceeding. the term 'corporate strategy' is used here for
two main reasons. First, because the book is concerned with strategy and estrategic decisions in all
types of organisation - small and large, commercial enterprises as well as public services - and the
word 'corporate' embraces them all. Second, because, as the term is used in this book, 'corporate
strategy' denotes the most general level of strategy in an organisation and in this sense embraces
other levels of strategy. Readers will undoubtedly come across other terms, such as 'strategic
management', 'business policy' and 'organisational strategy', all of which are used to describe the
same general topic.

what is strategy?

why were the issues Dell described as 'strategic'? what types of issues are strategic and what
distinguishes them from operational issues in organisations?

The characteristics of strategic decisions.
The characteristics usually associated with the words 'strategy' and 'strategic decisions' are these:

- Strategy is likely to be concerned with the long-term direction of an organisation. The
transformation of Dell from a computer product company with corporate clients to a mass market
provider of consumer electronic products would take a considerable period of time. Indeed in
2003 the process had already begun - about 20 per cent of its computer product sales were to
consumers.

- strategic decisions are likely to be concerned with the scope of an organisation's activities. For
example, does the organisation concentrate on one area of activity, or should it have many? The
issue of scope of activity is fundamental to strategy because it concerns the way in which those
responsible for managing the organisation conceive the organisation's boundaries. This could
include important decisions about product range or geographical converage. The broadening of
the scope of activities was clearly a fundamental aspect of Dell's plants

- Strategic decisions are normally about trying to achieve some advantage for the organisation
over competition. For example, Dell felt that the margins earned by many competitors were too
high and that made them vulverable to a satrategy of lower prices and tighter margins. For other
organisations advantage may be archieved in different ways and may also mean different things.
For example, in the public sector, strategic advantage could be thought of as providing better
value services than other providers, thus attracting support and funding from govemment.
- Strategy can be seen as the search for strategic fit with the business environment. This could
require major resource changes for an organization in the future. For example, decisions to
expand geographically may have significant implications in terms of the need to build and support
a new customer base. It is important to achieve the correct positioning of the organization, for
example in terms of the extent to which products or services meet clearly identified market needs.
This might take the form of a small business trying to find a particular niche in a market, or a
multinational corporation seeking to buy up businesses that have already found successful market
positions. At Dell one of the key challenges would be the building of strong consumer brands
essential for success in consumer electronics.
- However, strategy can also be seen as creating opportunities by building on an organisations
resources and competences. This is called the resource-based view of strategy, which is concerned
with exploiting the strategic capability of an organization, in terms of the resources and
competences, to provide competitive advantage and/or yield new opportunities. For example, a
large multinational corporation may focus its strategies on those businesses with strong brands. A
small business might try to change the rules of the game in its market to suit its own capabilities
which was the bases on which many dot.com companies entered established sectors. Dells
ambitions in consumer electronics were built on a belief that its knowledge of digital technologies
could be exploited across a wide range of products and markets.
- The strategy of an organization is affected not only by environmental forces and strategic
capability, but also by the values and expectations of those who have power in and around the
organization. Whether an organization is expansionist or more concerned with consolidation, or
where the boundaries are drawn for the organisations activities, may say much about the values
and attitudes of those who influence strategy the stakeholders of the organization. Clearly
Michael Dell as founder, chairman and CEO of Dell had a personal vision of the companys future.
But Dell had relationships with many other stakeholders who were affected by the companys
strategy and vice versa. First were the investors in the company.
Overall, if a definition of a strategy is required, the most basic might be the long-term direction of
an organisation. However, the characteristics described above can provide the basis for a fuller
definition:
Strategy is the direction and scope of an organisation over the long term, which achieves
advantage in a changing environment through its configuration of resources and competences
with the aim of fulfilling stakeholder expectations.
Strategic decisions.
Strategic decisions are about:
- The long-term direction of an organisation.
- The scope of an organisations activities.
- Gaining advantage over competitors.
- Addressing changes in the business environment.
- Building on resources and competences (capability)
- Values and expectations of stakeholders.
Therefore they are likely to:
- Be complex in nature
- Be made in situations of uncertainty.
- Affect operational decisions.
- Require an integrated approach (both inside and outside an organisation)
- Involve considerable change.
Summarises these characteristics of strategic decisions and also highlights some of the
consequences:
- Strategic decisions are likely to be complex in nature. This complexity is a defining feature
of strategy and strategic decisions and is especially so in organisations with wide
geographical scope, such as multinational firms, or wide ranges of products or services.
For example, Dell faced complexity from several issues at the same time, such as the
technical nature of the products, fast-moving markets and the need to coordinate its
activities over a wide geographical area.
- Strategic decisions may also have to be made in situations of uncertainty about the future.
For example, in Dells case no one can really predict with much clarity where exactly digital
technologies are moving the pace of change remains relentless.
- Strategic decisions are likely to affect operational decisions: for example, an increased
emphasis on consumer electronics would trigger off a whole series of new operational
activities, such as finding new suppliers and building strong new brands. This link between
overall strategy and operational aspects of the organisation is important for two other
reasons. First, if the operational aspects of the organisation are not in line with the
strategy, the, no matter how well considered the strategy is, it will not succeed. Second, it
is at the operational level that real strategic advantage can be achieved. Indeed,
competence in particular operational activities might determine which strategic
developments might make most sense. For example, Dells knowledge of internet selling
was fundamental to its success.
- Strategic decisions are also likely to demand an intergrated approach to managing the
organisation. Managers have to cross functional and operational boundaries to deal with
strategic problems and come to agreements with other managers who, inevitably, have
different interests and perhaps different priorities. Dells ability to exploit consumer
markets requires a combination of good products supported by good marketing. Weak in
either will cause failure.
- Managers may also have to sustain relationships and networks outside the organisation,
for example with suppliers, distributors and customers. Dells management of its supply
change had been a pillar of its success.
- Strategic decisions usually involve change in organisations which may prove difficult
because of the heritage of resources an because of culture. These cultural issues are
heightened following mergers as two very different cultures need to be brought closer
together or at least learn how to tolerate each other. Indeed, this often proves difficult
to achieve a large percentage of mergers fail to deliver their, promise for these
reasons.
Levels of strategy.
Strategies exist at a number of levels in an organisation. Taking Dell as an example, it is possible to
distinguish at least three different levels of strategy. The first, comporate-level strategy, is
concerned with the overall scope of an organisation and how value will be added to the different
parts (business units) of the organisation. This could include issues of geographical coverage,
diversity of products/services or business units, and how resources are to be allocated between
the different parts of the organisation. For Dell the push into consumer electronics was an
important corporate decision because it would affect the whole company. In general, corporate-
level strategy is also likely to be concerned with the expectations of owners the shareholders
and the stock market. It may well take form in an explicit or implicit statement of mission that
reflects such expectations. Being clear about corporate- level strategy is important: it is a basis of
other strategic decisions.
The second level can be thought of in terms of business-level strategy, which is about how to
compete successfully in particular markets or how to provide best value services in the public
services. This concerns which products or services should be developed in which markets and how
advantage over competitors can be achieved in order to achieve the objectives of the organisation
perhaps long-term profitability or market share growth. So, whereas corporate-level strategy
need to be related to a strategic business unit (SBU). A strategic business unit is a part of an
organisation for which there is a distinct external market for goods or services that is different
from another SBU. Dell had conceptualized its SBU in geographical terms and decided to structure
around these as three regional businesses the Americas, Europe. Theses were the primary foci
for business- level strategy. But these were only SUBs if the needs of all customers within each
region were very similar. This would clearly not be the case when the scope of products and
customer types (corporate vs. consumer) changed with the new strategy. Dell would need to
rethink its SBUs. There should clearly be a link between strategies at an SBU level and corporate-
level strategies that both assist and constrain these business-level strategies. For example, in the
case of Dell, product range and internet selling were strangly dictated centrally. Marketing and
customer support was regionalized. In public sector organisations a corresponding definition of an
SBU might be a part of the organisation or service for which there is a distinct client group. It is
important to remember that an SBU is a unit of an organisation for strategy-making purposes. It
may or may not be a separate structural part of the organisation- such as a department or a
division. Indeed SBUs will very often cross this formal structure requiring coordination in the
delivery of business-level strategies as mentioned earlier.
The third level of strategy is at the operating end of an organisation. Here there are operational
strategies, which are concerned with how the component parts of an organisation deliver
effectively the corporate- and business- level strategies in terms of resources, processes and
people. For example, Dell had six manufacturing centres in the world operating to support all of
the three regional businesses to fulfil its orders to the right standards and on time. Indeed, in most
businesses, successful business strategies depend to a large extent on decisions that are taken, or
activities that occur, at the operational level. The integration of operational decisions and strategy
is therefore of great importance, as mentioned earlier.
The vocabulary of strategy.
Although a definition of strategy was given at the end of section 1, in practice you will encounter
many different definitions from different authors. You will also find a variety of terms used in
relation to strategy, so it is worth devoting a little space to clarifying some of these. .