Contemporary Strategy Analysis Glossary

Question 1

Activity System

Answer 1

A conceptualisation of the firm as a set of interrelated activities.

Question 2

Agency Problem

Answer 2

An agency relationship exists when one party (the principal) contracts with another party (the agent) to act on behalf of the principal. The agency problem is the difficulty of ensuring that the agent acts in the principal’s interest.

Question 3

Ambidextrous Organization

Answer 3

An organization that can simultaneously exploit existing competences while exploring new opportunities for future development.

Question 4

Balanced Scorecard

Answer 4

A tool for linking strategic goals to performance indicators. These performance indicators combine performance indicators relating to financial performance, consumer satisfaction, internal efficiency, and learning and innovation.

Question 5

Benchmarking

Answer 5

A systematic process for comparing the practices, processes, resources and capabilities of other organizations with one’s own.

Question 6

Blue-ocean Strategy

Answer 6

The discovery or creation of uncontested market space.

Question 7

Business Ecosystem

Answer 7

The network of organizations with which a business enterprise interacts.

Question 8

Business Model

Answer 8

The overall logic of a business and the basis on which it generates revenue and profits.

Question 9

Business Strategy (aka Competitive Strategy)

Answer 9

This refers to how a firm competes within a particular industry or market.

Question 10

Causal Ambiguity

Answer 10

The difficulty facing any observer of diagnosing the sources of the competitive advantage of a firm with superior performance. It means that potential rivals face the problem of uncertain imitability.

Question 11

Comparative Advantage

Answer 11

A country’s ability to produce a particular product at a lower relative cost than other countries.

Question 12

Competency Trap

Answer 12

The barrier to change that results from an organization developing high levels of capability in particular activities.

Question 13

Competitive Advantage

Answer 13

A firm possesses a competitive advantage over its direct competitors when it earns (or has the potential to earn) a persistently higher rate of profit.

Question 14

Consumer Surplus

Answer 14

The value that a consumer receives from a good or service minus the price that he or she paid.

Question 15

Contingency Theory

Answer 15

Postulates that there is no single best way to design and manage an organization. The optimal structure and management systems for any organization are contingent upon its context - in particular, the features of its business environment and the technologies it utilizes.

Question 16

Corporate Governance

Answer 16

The system by which companies are directed and controlled.

Question 17

Corporate Planning

Answer 17

A systematic approach to resource allocation and strategic decisions within a company over the medium to long-term (typically 4-10 years).

Question 18

Corporate Restructuring

Answer 18

Radical strategic and organizational change designed to improve performance through cost reduction, employment reduction, divestment of assets, and internal reorganization.

Question 19

Corporate Strategy

Answer 19

A firm’s decision and intentions with regard to the scope of its activities (its choices in relation to the industries, national markets, and vertical activities within which it participates) and the resource allocation among these.

Question 20

Dominant Design

Answer 20

A product architecture that defines the look, functionality and production method for the product and becomes accepted by the industry as a whole.

Question 21

Dynamic Capabilities

Answer 21

Organizational capabilities that allow an organization to reconfigure its resources and modify its operating capabilities in order to adapt and change.

Question 22

Economic Profit

Answer 22

Pure profit: it is the surplus of revenues over all the costs of producing that revenue inputs (including the costs of capital).

Question 23

Economic Value Added (EVA)

Answer 23

A measure of economic profit. It is the excess of net operating profit after tax over the cost of the capital used in the business.

Question 24

Economics of Scale

Answer 24

These exist when increases in the scale of a firm or plant result in reductions in costs per unit of output.

Question 25

Economics of Scope

Answer 25

These exist when using a resource across multiple products or multiple markets uses less of that resource than when the activities are carried out independently.

Question 26

Emergent Strategy

Answer 26

The strategy that results from the actions and decisions of different organizational members as they deal with the forces that impinge upon the organization.

Question 27

Experience Curve

Answer 27

The relationship between unit costs and accumulated production. Typically unit costs decline by 15-30% every time cumulative output doubles.

Question 28

Functional Structure

Answer 28

Organization around specialized business functions such as accounting, finance, marketing, operations and so on.

Question 29

Game Theory

Answer 29

A body of theory that analyzes and predicts the outcome of competitive (and cooperative) situations where each player’s choice of action depends on the choices made by the other players in the game. Game theory has applications to business, economics, politics, international relations, biology, and social relations.

Question 30

Global Strategy

Answer 30

A strategy that treats the world as a single, if segmented, market.

Question 31

Hypercompetition

Answer 31

Competition that is characterized by rapid and intensive competitive moves where competitive advantage is quickly eroded and firms are continually seeking new sources of competitive advantage.

Question 32

Institutional Isomorphism

Answer 32

The tendency for organizations that are subject to common social norms and pressures for legitimacy to develop similar organizational characteristics.

Question 33

Isolating Mechanisms

Answer 33

Barriers that protect the competitive advantage of firms from imitative competition.

Question 34

Matrix Structures

Answer 34

Hierarchies that comprise multiple dimensions; these typically include product (or business) units, geographical units, and functions.

Question 35

Multidivisional Structure

Answer 35

A company structure comprising separate business units, each with significant operational independence, coordinated by a corporate head office that exerts strategic and financial control.

Question 36

Open innovation

Answer 36

An approach to innovation where a firm seeks solutions from organizations and individuals outside the firm and shares its technologies with other organizations.

Question 37

Organizational Culture

Answer 37

An organization’s values, traditions, behavioral norms, symbols, and social characteristics.

Question 38

Organizational Ecology

Answer 38

This studies the organizational population of industries and the processes of founding and selection that determine entry and exit.

Question 39

Organizational Routines

Answer 39

Patterns of coordinated activity through which an organization is able to perform tasks regularly and predictable.

Question 40

Path Dependency

Answer 40

The simple fact that history matters; more specifically, it implies that an organization’s strategy and structure and management’s options for the future are determined by it’s past decisions and actions.

Question 41

Prisoner’s Dilemma

Answer 41

A simple game theory model that shows how lack of cooperation results in an outcome that is inferior to that which could have been achieved with cooperation.

Question 42

Profit

Answer 42

The surplus of revenues over costs available for distribution to the owners of the firm.

Question 43

Real Option Analysis

Answer 43

This identifies and values possibilities for investment in uncertain opportunities. The two major types of real option are investments in flexibility and investment in growth opportunities.

Question 44

Realized Strategy

Answer 44

The actual strategy that the organization pursues; it is the outcome of the interaction of intended strategy with emergent strategy.

Question 45

Regime of Appropriability

Answer 45

The conditions that determine the extent to which a firm is able to capture profits from its innovations.

Question 46

Self-Organization

Answer 46

The tendency for complex systems, both natural and biological, to spontaneously achieve order and adaption though decentralized interactions without any centralized direction or control.

Question 47

Seller Concentration

Answer 47

This measures the extent to which a market is dominated by a small number of firms. The concentration ratio measures the market share of the largest firms; for example the four-firm concentration ratio (CR4) is the combined market share of the four biggest firms.

Question 48

Stakeholder Value Maximization

Answer 48

This proposes that the firm should maximize the value created by all its stakeholders (owners, employees, customers, suppliers, and society). Top management has the task of balancing and integrating these different interests.

Question 49

Strategic Fit

Answer 49

The consistency of a firm’s strategy with its external environment and with its internal environment, especially with its goals and values, resources, and capabilities, and structure and systems.

Question 50

Strategic Intent

Answer 50

The goal of an organization in terms of a desired future strategic position.

Question 51

Value

Answer 51

Within management terminology, value is used to refer to two very different concepts. In its plural form, values typically refer to ethical precepts and principles. In its singular form it typically refers to economic value: the monetary worth of a product or asset.

Question 52

Value Added

Answer 52

Sales revenue minus the cost of bought-in goods and services; it is equal to all the firm's payments to factors of production (i.e., 
wages and salaries 
\+ interest
\+ rent
\+ royalties and license fees
\+ taxes
\+ dividens
\+ retained profit)

Question 53

Value Chain

Answer 53

A sequence of vertically relatied activities undertaken by a single firm or by a number of vertically related firms in order to produce a product or service.

Question 54

Vertical Integration

Answer 54

A firm’s ownership of adjacent vertical activities.