Strategic Thinking: Internal and External Analysis (Chapters 3 & 4)

Comprehensive vocabulary flashcards covering internal strategic analysis (Resource-Based View, Value Chain, Core Competencies, Path Dependence, Culture, Dynamic Capabilities) and external strategic analysis (Environmental Scanning, Competitive Dynamics, Five Forces, Vertical Integration, Complementors, Life Cycles, Disruption, PESTEL, and SWOT).

Resource-Based View (RBV)

An internal strategic framework holding that firm-level factors explain performance differences among competitors within the same industry, having roughly twice the impact on profitability that industry-level factors do.

Resource Heterogeneity

A foundational assumption of the Resource-Based View stating that firms possess distinct bundles of resources, which causes them to perform differently.

Imperfect Mobility

A foundational assumption of the Resource-Based View asserting that some resources cannot be easily traded or transferred between firms (such as organizational culture), enabling performance differences to persist.

Tangible Resources

Visible, purchasable physical assets that are necessary to compete in an industry but rarely sustain competitive advantage on their own.

Intangible Resources

Non-physical firm assets—such as brand, reputation, and knowledge—that are harder to observe and imitate, making them strategically more valuable than physical assets.

Barney's Resource Categories

A three-part classification of firm resources into physical, human, and organizational capital, which become progressively harder for rivals to imitate as one moves down the list.

Grant's Resource Checklist

A six-part resource audit framework consisting of financial, physical, human, technological, organizational, and reputational resources, in which organizational capital is the most difficult to observe and replicate.

Capability

An organizational routine that bundles resources together to create value; considered the 'verbs' of internal analysis that belong to the firm as a whole rather than to any single asset or individual.

Value Chain Linkage

A relationship where the execution of one value chain activity directly affects the cost or effectiveness of another activity; coordinated linkages are difficult for rivals to observe or copy.

Profit Pool

The total profits generated across all stages of a wider value system, which are typically distributed unevenly among participating stages (e.g., coffee roasters capture far higher margins than farmers).

Core Competency

A firm capability that substantially outperforms what rivals can do, resulting from a system of reinforcing internal capabilities rather than a single isolated resource.

VRIO Framework

An internal diagnostic model that tests whether a firm capability is Valuable, Rare, Inimitable (subsuming non-substitutability), and organized (Organization) to exploit that capability for sustainable competitive advantage.

Obsolescent Strength

A capability diagnosis occurring when a firm possesses a strong capability that fails the VRIO Value test because the market opportunity it addressed no longer matters.

Competitive Parity

A competitive condition occurring when a capability passes the VRIO Value test but fails the Rarity test because every competitor in the industry possesses it.

Temporary Competitive Advantage

A competitive state resulting when a capability is valuable and rare but fails the VRIO Inimitability test because competitors can easily replicate or substitute it.

Path Dependence

The principle that capabilities are shaped by the specific historical sequence that produced them, meaning they cannot be rapidly acquired or duplicated on demand through financial capital alone.

Causal Ambiguity

An isolating mechanism where competitors, and sometimes the focal firm itself, cannot precisely identify the specific causes behind a competitive advantage, preventing rivals from creating a blueprint to copy.

Social Complexity

An isolating mechanism arising from complex, organic interpersonal ties, trust, and organizational culture that cannot be manufactured through administrative memos or reorganizations.

Strength–Rigidity Paradox

The dilemma wherein the embeddedness and self-reinforcing traits that make an organizational culture an inimitable asset also cause it to resist necessary adaptation when the competitive environment changes.

Ordinary Capabilities

Operational routines and basic capabilities required to execute current business activities and keep day-to-day operations running.

Dynamic Capabilities

A firm's ability to systematically integrate, build, and reconfigure its internal competencies to address and adapt to fast-changing environments.

Teece's Dynamic Capabilities Framework

A three-part adaptation taxonomy consisting of sensing (interpreting market signals and peripheral data), seizing (mobilizing resources decisively under uncertainty), and reconfiguring (renewing assets, structures, and routines).

Dual Mandate

The organizational imperative to continuously exploit existing competitive advantages while exploring and building new capabilities for future advantages.

Demand-Side Substitutability

A criterion defining an industry boundary based on the willingness and readiness of buyers to switch between alternative products to satisfy the same need.

Supply-Side Substitutability

A criterion defining an industry boundary based on the ability of producers to readily shift manufacturing and output capacity between alternative products.

Strategic Group

A set of firms within an industry that pursue similar business models along specific strategic dimensions, characterized by rivalry that is significantly more intense within the group than between different groups.

Herfindahl-Hirschman Index (HHI)

A regulatory metric calculated by summing the squares of individual market shares of all industry players to quantify industry concentration and resulting pricing power.

Market Commonality

The number of separate markets that two competing firms jointly contest and the relative importance of each shared market to each competitor.

Resource Similarity

The degree to which a competing firm possesses resources comparable in type and amount to those of another firm.

Strategic Actions

Significant competitive commitments of organizational resources that are difficult to reverse and typically draw fewer or slower competitive responses from rivals.

Tactical Actions

Relatively inexpensive, easily reversible competitive fine-tuning moves that prompt fast counter-moves from rivals.

Slow-Cycle Markets

Competitive arenas where advantages are strongly shielded from imitation (e.g., through patents or regulation), allowing firms to defend durable competitive advantages.

Standard-Cycle Markets

Competitive arenas (e.g., automobiles, consumer packaged goods) where advantages are moderately protected, requiring firms to compete for market share and brand loyalty.

Fast-Cycle Markets

Competitive arenas (e.g., software applications, fashion) where leads are fleeting and advantages are rapidly imitated, forcing firms to continually attack and innovate.

Porter's Five Forces

An external structural framework determining industry profitability by assessing how a finite pool of value is divided among rivalry, supplier power, buyer power, threat of entrants, and threat of substitutes.

Threat of Substitutes

A competitive force originating from outside the focal industry boundary that meets the same customer need with a fundamentally different product, placing a ceiling on the industry's pricing power.

Backward Integration

A corporate move where a firm produces its own inputs or establishes a credible threat to enter a supplier's industry, thereby constraining supplier bargaining power.

Forward Integration

A corporate move where a firm bypasses downstream intermediaries or distributors to sell directly to buyers, curbing buyer bargaining power.

Complementor

Brandenburger and Nalebuff's sixth force; a cooperative market actor whose product increases the value of the focal firm's product when used together, and vice versa.

Platform

A business model connecting two or more distinct user groups that act as mutual complementors, generating self-reinforcing network effects that often lead to winner-take-all markets.

Reverse Positioning

A strategic escape from industry maturity in which a firm intentionally strips away accumulated product features that customers no longer value to offer a simpler, lower-cost alternative.

Breakaway Positioning

A strategic escape from industry maturity in which a product is redefined to associate with an entirely different category, escaping mature boundaries and reigniting demand growth.

Disruptive Innovation

A form of disruption that enters at the low end of a market with an inferior, cheaper, good-enough offering and progressively improves its performance until displacing dominant incumbents.

Sustaining Innovation

An innovation that enhances performance along dimensions already prized by mainstream customers, typically favoring resource-rich incumbents over new entrants.

Innovator's Dilemma

A managerial phenomenon in which the exact practices that create business success—such as listening to top customers and pursuing higher profit margins—leave incumbents vulnerable to disruption.

PESTEL Analysis

A macro-environmental diagnostic framework that scans external Political, Economic, Socio-cultural, Technological, Environmental, and Legal forces outside any single firm's direct control.

SWOT Synthesis

A strategic integration tool that maps internal strengths and weaknesses against external opportunities and threats to deduce leverage, develop, defend, and avoid strategies.