Key Concepts

Question 1

activities

Answer 1

discrete economic processes, such as operating a sales force, developing products, or physical delivery to the customer; usually involves people, technology, fixed assets, sometimes working capital, and various types of information

Question 2

barriers to entry

Answer 2

the hurdles a new entrant would have to surmount in order to enter an industry; when these are low, it lowers the industry’s average profitability

Question 3

barriers to imitation

Answer 3

the hurdles facing a rival within an industry who tries to move from one positioning to another in order to copy another company’s strategy; these slow the process of competitive convergence

Question 4

clusters

Answer 4

geographic concentrations of companies, suppliers, related industries and specialized institutions; draw on local assets and institutions; crucial driver of competitiveness, entrepreneurship, and new business growth

Question 5

competition

Answer 5

the tug-of-war over profits that occurs not just between rivals but also between a company and its customers, its suppliers, makers of substitutes, and potential new entrants

Question 6

competitive advantage

Answer 6

differences in relative price or relative costs arise because of differences in the activities being performed

Question 7

competitive convergence

Answer 7

when companies imitate and match each others moves, compete to be the best; differences are replaced by a standard offering, leaving customers to choose on price alone, and limited choice

Question 8

competitiveness of a location (nation)

Answer 8

defined by Porter in terms of how well a place uses its human and natural resources as well as its capital; how well it uses inputs to produce valuable goods and services, not from the inputs it has; from choices, not endowments

Question 9

competitor analysis

Answer 9

intelligence gathering and analysis aimed at helping a company deal with competitive dynamics by assessing the intentions and capabilities of rivals

Question 10

continuity

Answer 10

term to refer to the stability in the core value proposition

Question 11

corporate strategy

Answer 11

the overall strategy for a corporation that consists of diversified businesses in multiple industries; goal should be to enhance the competitive advantage of its multiple business units

Question 12

cost driver

Answer 12

the factors that influence cost; in analyzing a companies cost position, look at each distinct activity to see which factors influence the cost of that activity

Question 13

diamond theory

Answer 13

from Porter’s ‘Competitive Advantage of Nations,’ framework that explains why some nations and regions achieve greater success in a given industry than others

Question 14

differentiation

Answer 14

in marketing, used to describe how one offering is positioned in relation to other; Porter narrows to refer to a companies ability to command a higher relative price than rivals b/c offering increases customers willingness to pay

Question 15

diversification

Answer 15

expansion of a company into different businesses; in Porter’s thinking, it’s directly linked to the value chain and its activities

Question 16

execution/operational effectiveness

Answer 16

companies ability to perform the same or similar activities better than rivals; every functional area has its current best practices

Question 17

fit

Answer 17

when the value or cost of one activity is affected by the way other activities are performed; can amplify competitive advantage and sustainability of strategy

Question 18

five forces

Answer 18

Porter’s seminal framework for assessing competition in any industry by analyzing the industry’s structure

Question 19

generic strategies

Answer 19

broad characterizations of the key themes of strategic positioning; focused and differentiation strategies can be integrated into effective strategy

Question 20

industry structure

Answer 20

the basic, underlying economic and technological characteristics of an industry that shape the competitive arena in which strategy must be set

Question 21

outsourcing

Answer 21

the decision to buy from a third party an activity that your organization once performed internally

Question 22

positioning

Answer 22

the choice of a value proposition made against a specific and relevant set of industry rivals

Question 23

relative buyer value

Answer 23

how much the customer is willing to pay for a good or service versus other offerings

Question 24

relative cost

Answer 24

your cost per unit relative to that of your rivals; advantage in this can come from performing the same activities better or choosing to perform different activities

Question 25

relative price

Answer 25

your price per unit relative to that of your rivals; an advantage here comes from differentiation that produces buyer value (something distinctive for which customers are willing to pay more)

Question 26

return on invested capital (ROIC)

Answer 26

a financial measure that weighs the profits a business generates versus the capital invested in it; captures how effectively a company uses its resources to generate economic value

Question 27

strategic competition

Answer 27

used to refer to positive-sum competition, in which companies win (and achieve superior profitability) by creating unique value for their customers

Question 28

strategy

Answer 28

the set of integrated choices that define how you will achieve superior performance in the face of competition; the positioning you choose and the actions you take to realize the positioning

Question 29

substitute

Answer 29

a product from another category that a customer might choose to meet the same need your product serves

Question 30

tailored value chain

Answer 30

activities that are designed specifically to deliver a certain value proposition

Question 31

trade-offs

Answer 31

when companies have to make choices between strategic positionings that are inconsistent; sustain competitive advantage by deterring imitation from existing rivals

Question 32

value chain

Answer 32

the set of all the discrete activities a firm performs in creating, producing, marketing and delivering its good or service; all costs arise from these activities and all differentiation is created by them

Question 33

value creation

Answer 33

process by which organizations transform inputs into goods and services that are worth more than the sum of those inputs

Question 34

value proposition

Answer 34

the core element of strategy that defines the kind of value a company will create for its customers: who will you serve? what needs will you meet? what relative price will you charge?

Question 35

value system

Answer 35

the full set of end-to-end activities involved in creating value for the end user; beyond the value chain, stretching upstream, downstream or both

Question 36

zero-sum competition

Answer 36

a form of rivalry in which you win only if someone else loses, even if the “someone else” is your customer or your supplier