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Establishing Business Strategy with Information Technology

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According to the article (Schoen 2006), that talks about “ The future of the auto industry” , U. S. sales of hybrid vehicles roughly doubled in 2005. And additionally, based on HybridCars. com the hybrid cars sold have increased from less than 10,000 in 2000 to more than 200,000 in 2005, which means that is only about 1 percent of the roughly 17 million cars and light trucks sold overall. On the other side, based on what the article (Alexander 2006) “ Forecast 2006: VoIP” talks, 2006 will be the year VoIP becomes widely adopted. "The big advance will come in corporations rather than the government sector, " Wolfe predicts (CIO for the state of North Dakota). The facts mentioned made these two trends quite relevant to economics and managerial decision making.

Managers can make immediate improvements in performance by better matching the firm’ s strategy to its business environment. As any manager should recognize, conditions change over time, so that strategies that are appropriate to today’ s business environment may be inappropriate in the future. The link between the decisions managers control and a firm’ s profitability is mediated by a host of economic relationships.

The success of any strategy depends on whether the firm’ s decisions are compatible with these relationships. The most basic is the law of demand. The law of demand says that all other things being the same, the lower the price of a product, the more consumers will purchase it. Whether the increase in the number of units sold translates into higher sales revenues depends on the strength of the relationship between price and the quantity purchased. This is measured by the price elasticity of demand. Price-elastic demand implies that a price cut translates not only into higher unit sales but also into higher sales revenue.

That firm’ s higher sales revenue translates into higher profit depends on the economic relationship between the additional sales revenue that a firm’ s price cut generated and the additional cost of producing more products.

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