Introduction to Strategy - Key Terms & Core Concepts

Essential vocabulary flashcards covering competitive strategy, industry structural forces, business models, strategic positioning, and alternative frameworks from HBS Core Reading.

Strategy

An integrated set of choices that positions the business in its industry so as to generate superior financial returns over the long run.

Blue Ocean Strategy

A business’s creation of a new, uncontested market space that marginalizes competitors and creates new consumer value while decreasing costs.

Competitive Advantage

A firm’s ability to create a large gap between the amount its customers are willing to pay and the costs it incurs, created when a firm must perform activities more effectively or distinctively than its industry rivals.

Complement

A company in one industry that provides products or services that increase the value of the products or services of a company in another industry.

Differentiation

A strategy based on offering products or services that command a price premium because they are superior in quality, reliability, and/or prestige.

Economic Profit

A company’s residual wealth, calculated by deducting the cost of capital from its operating profit; also known as economic value added (EVA).

Economies of Scale

The decline in the cost of production per unit as the volume grows.

Economies of Scope

The decline in the cost of production due to the sharing of resources across products and services.

Emergent Strategy

The view that a successful strategy is less the product of deliberation and planning than of the collision of intentions and reality, whether internal or external.

Resource-Based View (RBV)

The view that the development of a company’s resources and capabilities are the most effective basis of a successful strategy.

Strategic Positioning

The means by which a manager situates a company relative to its competitors.

Substitutes

Multiple products from different industries that serve the same purpose for customers.

SWOT Framework

A theory that matches a company’s strengths against its weaknesses and its opportunities against its threats.

Supplier Opportunity Cost (SOC)

The smallest amount that a supplier will accept for the services and resources required to produce a good or service.

Vertical Integration

A strategy in which a business takes over functions once provided by suppliers or customers.

Value Capture

A firm’s ability to capture the product’s value (the difference between cost and price across all units sold) as retained profit.

Value Creation

The difference between a customer’s willingness to pay and the firm’s cost (determined by the supplier’s opportunity cost) across all units sold.

Willingness to Pay (WTP)

The maximum amount of money a customer is willing to part with in order to obtain a product or service.

Business Model

The underlying logic of the firm, how it operates, and how it creates and captures value.

Fit

The alignment of a firm's choices and activities such that they support its value proposition, are mutually reinforcing, and enable optimization of effort.

Trade-offs

The strategic decisions to forgo certain activities or target markets to maintain consistency and prevent parts of a business from working at cross purposes.

Holdup

A threat occurring when the bargaining power of a firm’s buyers, suppliers, or complements increases, allowing them to capture more value.

Value Pioneering

Offering existing products and services in a compelling new way by shifting the boundaries of existing industries.

Three-Dimensional Business Landscape

A visual conceptualization where a firm's choices lead to higher or lower profitability, represented as elevated points on a topography.

Strategic Repositioning Options

The strategic pathways a firm can explore on a business landscape, including targeting a different market, changing the business model, shifting both positioning and target market, or changing the landscape itself.

Threat of New Entrants

The risk that new players will enter an industry and erode profits by increasing competition, capturing market share, and introducing alternative products.

Bargaining Power of Suppliers

The leverage held by suppliers to raise prices or drive up costs when they offer unique products, have high switching costs, or are concentrated.

Bargaining Power of Buyers

The leverage held by customers to squeeze profit margins when they are concentrated or free to direct purchases elsewhere.

Intensity of Rivalry

The degree to which existing industry competitors engage in aggressive actions, such as price wars, which reduce the overall industry profit pool.

Internal Barriers to Response

Organizational failures—categorized as perception, motivation, inspiration, and coordination—that hinder a firm from reacting effectively to external threats.