Applied Business Strategy: Comprehensive Review

This set of vocabulary flashcards covers the fundamental concepts, theories, and models of business strategy, including external and internal analysis, generic strategies, corporate diversification, international expansion, and innovation frameworks.

Business Strategy

A dynamic plan based on the theory leaders have about how to succeed in a particular market to gain and sustain competitive advantage.

Competitive Advantage

A situation in which a firm generates consistently higher profits compared to its competitors by consistently outperforming rivals in generating above-average profits.

Above-average Profits

Profit returns in excess of what investors expect from other investments with a similar amount of risk.

Risk

An investor's uncertainty about the profits or losses that will result from a particular investment.

Resources

Assets that the firm accumulates over time to support its activities.

Capabilities

Processes the firm develops to coordinate human activity to achieve specific goals.

External Analysis

An assessment of forces that influence industry attractiveness, including opportunities and threats in the environment.

Internal Analysis

An examination of a firm's resources and capabilities to assess how effectively the firm is able to deliver unique value to customers.

Value Proposition

The unique value a company offers to customers in its selected markets, often categorized as low-cost or differentiation.

Low-cost Strategy

A generic strategy where the focus is on reducing costs below those of competitors through economies of scale, lower-cost inputs, or proprietary know-how.

Differentiation Strategy

A generic strategy where the focus is on offering features, quality, convenience, or image that customers cannot get from competitors.

Mission Statement

An outline of the firm’s primary purpose that often specifies the businesses in which it competes or the customers it intends to serve.

Price Sensitivity

The degree to which the price of a product or service affects consumers’ willingness to purchase that product or service.

Customer Segmentation

The process of dividing customers into groups based on similar needs or wants.

Resource-based Model (1980)

A model assuming that each company is a collection of resources and capabilities (competencies) deployed to deliver unique value.

Corporate Strategy

Strategic decisions identifying where to compete in terms of industries and markets and providing guidance for managing business units.

Business Unit Strategy

Strategic plans identifying what unique value to offer (cost or differentiation) and how to deliver it within a specific line of business.

Functional Strategy

Strategies and tactics of specific areas (such as R&D, Operations, Marketing, HR) that align with and implement the overall business unit strategy.

Strategic Vehicles

Methods used to enter attractive markets and build competencies, such as diversification, acquisitions, alliances, vertical integration, and international expansions.

Strategy Implementation

The step where a company adopts organizational processes that enable it to effectively carry out its chosen strategy.

Deliberate Strategies

Intended strategies implemented as a result of a careful analysis of the market, consumers, competitors, and firm competencies.

Emergent Strategies

Strategies implemented when leaders recognize and act on unexpected opportunities outside of the original strategic plan.

Stakeholders

Individuals or groups who have a share or an interest in the activities and performance of an organization, categorized as capital market, product market, organizational, and community stakeholders.

Absolute Value

The difference between the benefits totally perceived and the costs (monetary and non-monetary) totally incurred before, during, and after a purchase.

Relative Value

The perceived value by the client of a product or service specifically with respect to the competitors’ offering.

Hygienic Factors

Basic functions of a product or service that are taken for granted by the consumer.

Motivational Factors

Elements of an offer that add value beyond basic functions and motivate a consumer to buy the product.

Value Chain

A visual description developed by Michael Porter of the steps required to turn raw materials into finished products and services.

Dynamic Capabilities

Procedures and processes that continuously expand existing resources and improve operating capabilities to keep pace with environmental changes.

Priorities

A firm’s values and rankings of what is most important, which drive the choices of where to invest money and time.

VRIO Model

A framework identifying resources that allow a firm to maintain competitive advantage if they are: Valuable, Rare, Inimitable, and Organizable to exploit.

Inimitability

An attribute of a resource or capability describing the degree of difficulty a competitor would face in copying or mimicking its value.

Path Dependence

A barrier to imitation where the unique process through which a resource or capability came into being makes it difficult for others to replicate.

Tacit Knowledge

Skills and processes that are difficult to codify or learn because they are based on sticky, immobile knowledge rather than explicit instructions.

Causal Ambiguity

Uncertainty or unclear relationship between a specific cause and its effect, complicating the identification of true competitive mechanisms.

Time Compression Diseconomies

Occur when an attempt to rush an action increases costs and inefficiency rather than decreasing them.

Network Effects

A situation where the value of a product increases along with the number of users it has, creating a virtuous circle.

Rivalry

The intensity with which companies compete with each other for customers, influenced by factors like the size of competitors and industry growth.

Switching Costs

Barriers that keep buyers using the same supplier by imposing extra costs for switching to a different provider.

PESTEL Analysis

An external analysis tool for macro-environmental trends categorized as Political, Economical, Sociological, Technological, Environmental, and Legal.

Industry

The sum of more businesses generally based on the same technology.

NACE

The statistical classification of economic activities used in the European Union to define the boundaries of industry activities.

Economies of Scale

The reduction in average cost per unit due to increases in efficiency as the number of produced goods increases.

Economies of Scope

The reduction in average cost per unit due to increases in the number of different produced goods using the same resources.

Law of Experience

The principle that the cost per unit of a standard product declines by a constant percentage, typically between $10\%$ and $30\%$, each time cumulative output doubles.

Minimum Efficient Scale

The optimal quantity for a company to produce on the scale curve before reaching diseconomies of scale.

Blue Ocean Strategy

A strategy of creating an untapped market space where a company creates its own demand rather than competing in a crowded market.

Horizontal Diversification

Movement into adjacent markets that are not in the current value chain, achieved through greenfield entry, acquisitions, or alliances.

Backward Integration

A form of vertical integration where a company moves backward in the value chain to control upstream activities and suppliers.

Forward Integration

A form of vertical integration where a company moves forward in the value chain to control downstream activities closer to the customer.

Strategic Alliance

A durable cooperation agreement between autonomous firms to jointly reach individual objectives connected to their missions.

Joint Venture

A form of equity alliance where collaborating firms create and jointly own a legally independent company.

CAGE Framework

An acronym used to summarize risks or distances in international expansion: Cultural, Administrative, Geographic, and Economic distances.

Multidomestic Strategy

An international strategy focusing on maximizing local responsiveness by tailoring products and operations to individual foreign markets.

Arbitrage Strategy

An international strategy based on taking advantage of market differences, such as economic, capital, administrative, or cultural differences.

Transnational Strategy

A hybrid international strategy that conducts some activities on a centralized global basis and Others on a local responsive basis.

Disruptive Innovation

Innovative strategies that use different resources or models to create hard-to-initiate value propositions, often classified as low-end or high-end.

Disintermediation

An innovative strategy involving the elimination of a step in the value chain path from production to the customer.

Open Innovation

The use of purposive inflows and outflows of knowledge to accelerate internal innovation and expand markets for external use of innovation.