Glossary of Core Strategic Management Concepts

80/20 rule
Sometimes called the Pareto distribution, the notion that to be strategic organisations should focus on the 20% of the business/customers/suppliers/stakeholders that make 80% of the difference to the business. The potential weakness of using this logic is that it may not adequately reflect dynamic situations.
Abductive logic
Advocates positing that something might or could be and then reaching out to understand and develop it as a way of spurring substantive innovations. Often used in design thinking in contrast to the conventional inductive or deductive logic.
Absolute advantage
Adam Smith’s theory that nations should specialise in production of goods where they have a natural or acquired advantage.
Accelerators
Accelerators seek to help start-ups move quickly to establish their ideas in the market (like Y Combinator, Techstars and the Brandery).
Acquisition
The “A” in M&A. This is where one organisation buys a majority stake in another company for control. For the target company shareholders to sell their shares generally requires the payment of a premium. Acquisitions take place when the acquired organisation has assets/resources/capabilities that are valuable to the acquirer and are not generally available through other means such as contracting.Affordances Aspects of an environment that allow and constrain the actions and activities of people; for instance how a building is configured.
Agency problem
When managers (agents) are acting in their own self-interest rather than in the interests of the owner (principal) this is an agency problem. Evidence of this may be seen in decision-making which rewards managers rather than shareholders.
Agility
The ability of an organisation to respond to external changes.
Ansoff matrix
A technique for identifying directions in which an organisation might grow based on markets and products.
Aretaic ethics
An older approach to ethics that emphasises an organisation discovering, promoting and staying true to its unique virtues and what these provide for the wider community. What we might see today as “ethos” (cf. deontic ethics).
Balanced Scorecard
A technique for using multiple criteria to assess performance.
Bargaining power
A key concept in Porter’s Five Forces of Industry model (see Industry forces). Bargaining power generally relates to the horizontal dimension of the model and denotes the ability of suppliers and customers to extract profit from an industry or vice versa.
Barriers to change
Obstacles to organisational change that may take psychological, cognitive, social and cultural forms.
Barriers to entry
A core concept in Porter’s Five Forces framework, these are obstacles to be overcome by new entrants if they are to compete successfully in the industry. They may take many forms both tangible (such as property) and intangible (such as political connections).Behavioural Strategy This new approach to strategy recognises that individual cognition and psychology affects decision making.
Best practice
A “benchmarking” approach where organisations determine who the leader in a particular practice is and then copy that approach. Useful for achieving efficiencies but may diminish differentiation if not used with caution at the strategic level.
Black Swan event
Rare events which are completely unexpected.
Blue ocean strategy
A strategy that seeks to move an organisation away from arenas where competition is fierce (i.e. the red ocean) by doing something that other companies have not considered or cannot compete in.
Boston Box (BCG matrix)
A colloquial name for the first portfolio analytic matrix, developed by the Boston Consulting Group (BCG), that led to the popular use of the terms “cash cow”, “star”, “dog” and “question mark”.
Boundedness
Sometimes referred to as “scarcity of mind”, boundedness means: (1) managers always face problems with quality and quantity of information needed to take decisions; (2) even with sufficient information they have limited capacity to process complex information bundles. The result is suboptimal decision-making.
Brexit
This stands for British exit from the European Union.
Business model
Colloquial term used to express how an organisation seeks to turn a profit or create added value. It describes the structure linking intended strategy, its operational and functional requirements and anticipated performance. There are many types of business model but they can be classified into one-sided, multi-sided/platform, social and collective.
Buyer power
A situation where buyers can take advantage of intense competitive rivalry and/or low switching costs and/or their size to seek discounts/better service etc. from a company. Often used in conjunction with the Five Forces of Industry framework.
Californianisation
A term to indicate globalisation of tastes.
Capabilities
Organisational attributes or combinations of attributes that enable an organisation to develop or follow strategies. Capabilities are processes, activities, routines. Because of their systemic and complex nature, they are often difficult for other organisations to replicate.
Change agent
An individual or group that brings about change in an organisation.
Change models
There are numerous stage models of change (n-stage), the best known of which are by Lewin and Kotter (see Eight stages of change). Also of note are models by Pettigrew and Whipp and Mintzberg and Westley.Cognitive bias This is a subjective perception of reality that leads to systematic deviations from the norm and/or rational judgment. Common biases include anchoring effects, attentional bias, hindsight bias, hubris and narcissim. Recognition of the effects of cognitive biases on managerial decision making underpins Behavioural Strategy.
Collision Matrix
An advanced SWOT analysis that makes explicit the comparison of external (opportunities and threats) and internal (strengths and weaknesses) factors in order to create strategic opportunities. These can be described as real opportunities, potential opportunities, real threats and potential threats.
Communities of practice
Informal social networks bound together by shared expertise, experiences and passion. Can influence thinking and behaviour and be a good source of new ideas and energy that crosses traditional organisational boundaries.
Comparative advantage
David Ricardo’s theory that countries should produce and trade in goods which they are best equipped to produce even though they could produce goods at a lower cost than other countries.
Competencies
Associated with the Resource-Based View of strategy, these are the skills and abilities by which resources are deployed effectively throughout an organisation.
Competitive advantage
The unique set of assets, capabilities, positions and environmental circumstances that enable an organisation to consistently out-perform its competitors in its chosen strategic outcomes.
Competitive level
Where an organisation competes in its environment.
Competitive scope
The range of markets/customers that the firm addresses in its positioning.
Competitive strategy
How an organisation’s business units will seek to gain advantage over other players in an industry. Often confused with competitive advantage: while a competitive strategy may lead to and/or protect a competitive advantage this is not necessarily the case.The basis on which a business can understand and manipulate factors which cause inequalities so as to give an organisation a sustainable competitive advantage.
Competitive strength
A term often used in portfolio matrices to determine the relative strength of an organisation in relation to competitors. It often refers to variables such as market share, advertising effectiveness, reputation or experience curve effects, for instance.
Complementors
Firms that sell products or services that add value to or “complement” the product/service of the business under consideration as an essential component (e.g. petrol sellers and car companies) or as a valued extra (e.g. wineries and restaurants).
Configuration
This refers to an organisation’s architecture of structures, processes and relationships through which the organisation operates.
Conglomerate
A firm made up of a set of unrelated businesses.
Conglomerate discount
Where the share market devalues the stock value of a conglomerate, often to the point where it becomes lower than the sum of the market capitalisation because it believes the conglomerate grouping devalues rather than adds value.
Consolidation
Where competitors in a mature or declining industry merge. The effect is to reduce the numbers of organisations and so reduce competitive pressures.
Consortium
A group or association of businesses formed to promote or facilitate a common purpose for mutual benefit. For instance, an organisation may be created with multiple owners reflecting a common purpose.
Convergence
Where industries which were previously distinct begin to overlap in terms of customers, products, technologies and activities.
Co-opetition
The idea that it may be better to work with other organisations traditionally seen as competitors.
Core competence
A set of distinctive skills, complementary assets and routines which are fundamental to a firm’s competitive capacity and sustainable advantage and which can be deployed across several product markets. The concept is associated with the Resource-Based View (RBV) of the firm.The shared values that are said to underpin an organisation’s strategy and way of doing business.
Core values
Beliefs or principles that guide its decision-making.
Corporate advantage
The value added to the multi-business company of its corporate centre.
Corporate environmental integrity
Emphasises an organisation’s responsibility to manage its processes and products so as to minimise their impact on the physical environment.
Corporate governance
This focuses on who the firm should serve, the distribution of power and relationships among different stakeholders, and the selection and conduct of senior management.
Corporate identity
An increasingly popular notion that organisations, like individuals, have an identity and that understanding and developing this identity may be key to developing a clear and effective strategic position.
Corporate Social Responsibility (CSR)
The concept that the firm, as a corporate “citizen”, has ethical responsibilities that go beyond merely obeying the law.
Corporate strategy
Concerns the scope of the product markets, industries and geographies addressed by the firm as a whole, the boundaries of the firm, and how to manage that scope in a way that adds value.
Corporate sustainability
The concept that firms should balance the needs of the environment and society with the economic prosperity of the firm.
Cost advantage
An organisation that can do the same thing as rivals but at a lower cost.
Cost of capital
Cost of capital consists of the cost of equity capital (required dividend and capital gain) and its cost of debt capital (interest rate).
Cradle-to-grave
The concept that a firm is responsible for its products from conception to final disposal.
Critical Success Factors (CSFs)
The requirements for strategic success in a particular industry at a particular point in time.
Crowdsourcing
The practice of outsourcing organisational tasks by placing a call on the internet and inviting all-comers to post submissions, often with the lure of a prize or commission for the “best entry”.
CSOs
Chief Strategy Officers. Senior executives (sometimes called Senior Strategy Directors: see Angwin, Paroutis and Mitson, 2009) who interface between the CEO and the rest of the organisation. Their roles vary (see Powell and Angwin, 2012), but can include strategic planning, strategic thinking, negotiation, strategy implementation and organisational change (restructuring, disposals, acquisitions and alliances).
Cultural distance
A measure of the extent to which cultures vary on key dimensions (see National culture) – Culture has been variously defined but can be said to be the set of shared beliefs, attitudes, values, goals and practices that characterises an institution, organisation or group. It is a multi-layered concept drawing upon national, regional, local, industrial and professional contexts. In terms of organisations coming together, through trade or ownership, cultural differences can result in significant friction termed culture clash.
Cultural web
An approach to depicting an organisation’s culture as a system of interrelated elements, involving symbols, stories, routines, power, organisational structures, control systems and amounting to a paradigm.
Deontic ethics
A conventional approach to ethics that encourages organisations to view business ethics in terms of outlining rights, duties and responsibilities to stakeholders, often in the form of codes of conduct (cf. aretaic ethics).
Design thinking
Perhaps the most influential new trend in business thinking in the past few years, suggests that managers should be thinking like designers and utilising perspectives such as abductive logic and prototyping.
Determinism
The philosophical view that every event, including human cognition, behaviour, decision and action is causally determined by previous events.
Differentiation advantage
The offering of services or products which offer benefits to consumers which are (1) different from those of competitors and (2) sufficiently valued by consumers that they will pay a premium price sufficient to cover the costs of differentiation.
Discounted Cash Flow method (DCF)
A valuation method that estimates future free cash flows projections and discounts them by a risk factor to arrive at a present value estimate.
Diversification
Classically defined in Ansoff’s Matrix, diversification is when an organisation ventures into a new market with new products. Subsequently, diversification has also been determined in terms of an organisation venturing into new industries requiring new capabilities and competencies. In M&A terms, diversification acquisitions are often termed conglomerate acquisitions, as differences in industry and capabilities suggest limited scope for managerial synergies. It is generally believed that diversification is the riskiest of corporate strategies and results in worse outcomes than less conservative strategic options, although the evidence remains ambivalent.
Divestment
The disposal of an organisation’s subsidiaries, investments or other holdings by sale, liquidation, listing or employee purchase.
Dividend
This is a portion of a company’s earnings that are distributed regularly to shareholders. It may be viewed as a reward/incentive for owning shares in the company.
“Dolphin tail” effect
Where an industry can be rejuvenated through innovation.
Dominant logic
The concept that unifies the group of different businesses held by a corporation. This perception of the Top Management Team (TMT) AQ: What is the TMT?"?> needs to be underpinned by actual synergies.
DuPont Analysis
A hierarchical technique that breaks down ROCE so that its constituents can be identified and managed.
Dynamic capabilities
Higher level processes/capabilities which allow a firm to re-configure its resources in order to adapt to environmental changes. These capabilities can be grown and learned by the organisation and its members – often associated with notions of the knowledge society and the learning organisation.
Eclectic theory
John Dunning’s theory which centres on ownership, location and internalisation (OLI) to determine a firm’s motivation for international expansion.
Economic Value Added (EVA)
EVA = net operating profit after tax – cost of capital. It is an estimate of the value created by an organisation in excess of the required return for its shareholders.
Economies of scale
Economic gains made as the average cost of producing a unit of product or service declines as the volume produced increases.
Economies of scope
Economic gains made when using a resource across multiple activities uses less of that resource than when the activities are carried out independently.
Eight AQ: Only seven are listed"?> steps of change
John Kotter’s framework that suggests that successful strategic change requires eight elements: a sense of urgency; a guiding coalition; articulating a vision; communication that vision; empowering others to act; creating short-term wins; consolidation; and encouraging more change.
Emergent view
The idea, popularised by Henry Mintzberg, that good strategies are more likely to emerge from interactions between staff, customers, suppliers, etc., at the bottom of the organisational pyramid, rather than being conceived by top senior managers.
Entry barriers
See Barriers to entry.
ESTEMPLE
An acronym coined by Duncan Angwin to denote major macro-environmental pressures upon business. It stands for Economic, Social, Technological, Ecological, Media, Political, Legal, Ethical drivers of environmental change.
Ethics
A system of beliefs about decent human conduct. We discuss two approaches: aretaic and deontic.
Evolutionary transformation
A gradual, organic approach to managing strategic change that encourages new ways to emerge and be developed from within (cf. Revolutionary transformation).
Exit barriers
Factors preventing an organisation from leaving an industry. If these barriers are high, they can incentivise organisations to stay and compete more vigorously.
Experience curve
The idea that by performing a task many times one becomes more efficient or more expert. In economic terms this means a reduction in unit costs as cumulative output increases. The implications for strategy are that if a firm can expand output faster than competitors it can move down the experience curve more rapidly and open up a widening cost differential.
Exploit versus explore
A dichotomy found in the work of Richard Cyert and James March that organisations can advance strategically by either exploiting existing resources or exploring new opportunities. There is much debate as to what the optimum balance between the two might be.
External dependent stakeholders
These include (1) economic (lenders, customers, suppliers, competitors, distributors) where stakeholders can influence the value creation process; (2) advisory (non-executive directors, consultants, gurus, business schools, lawyers, accountants); and (3) sociopolitical (local authorities, unions) stakeholders.
Fast followers
Organisations which decide to enter into a marketplace after competitors have already entered and have had time to “test the waters”.
First movers
Often used to describe organisations entering an overseas market before competitors, but could also be used to describe entering any new arena. Often termed First Mover Advantage as it may confer benefits for the organisation in being able to shape the market in ways advantageous to itself.
Fitness
The extent to which an organisation is in “fit” with its context and also its general condition allowing it to flex with a changing context (see Agility).
Five Forces of Industry framework
Porter’s industry-level framework intended to identify the attractiveness of industries on the basis of five major influencing factors.
Flying Geese model
Developed by Kaname Akamatsu to explain Japan’s transition from one industry to another and how comparative advantage shifts from one nation to another.
Forecasting
A planning tool to help management to cope with the uncertainty of the future. It is based on certain assumptions based on management’s experience, knowledge and judgment and these estimates are projected into the future using techniques such as Box-Jenkins models, Delphi method, exponential smoothing, moving averages, regression analysis and trend projection. The technique of sensitivity analysis is also often used which assigns a range of values to uncertain variables in order to reduce potential errors.
Forward integration
This means buying.
Franchising
A contract granted to an organisation or individual to operate under a brand often under condition that certain quality practices are followed.
Functional structure
The organisation of a firm based upon primary functions including marketing, R&D, human resources and finance.
Game theory
A rigorous theory concerned with the competitive interactions between different organisations. Although appealing, its application can be limited due to real world complexities.
Gearing ratio
Long-term debt to equity capital. A term used in the UK for determining the level of indebtedness of an organisation (also called leverage).
Generic Strategy Matrix (GSM)
A framework by Porter that argues that there are four types of sustainable advantage in competitive industries, namely broad cost, broad differentiation, cost focus and differentiation focus advantages.
Global sourcing
Purchasing inputs from the most appropriate suppliers from anywhere around the world.
Global strategy
This emphasises economies of scale through the standardisation of products and services.
Good practice
A term first promoted by IBM to try to get around some of the negative effects of thinking in terms of best practice. Whereas best practice can breed complacency once it is achieved or copied, the bringing to the table of different types of good practice can encourage a more open marketplace of ideas.
Greenwashing
Companies “spinning” their products and policies as environmentally friendly to gain a competitive edge.
Gross margin
Sales minus Cost of Goods and Services divided by Sales.
Growth Vector Components Matrix
Created by Igor Ansoff, this matrix is useful for thinking about strategic development options.
Horizontal integration
The joining of firms at the same competitive level in the industry value chain (i.e. competitors, potential new entrants or substitutes).
Horizontal M&A
Acquisition of an organisation in the same industry.
HOS model of factor endowments
By Hecksher and Ohlin, this model argues that, as a country specialises, the main factor of production will become increasingly expensive and rare so encouraging a need to develop other advantages.
Hubris
Overbearing arrogance often used to explain non-rational behaviour in top management, such as overpaying for an acquisition.
Hybrid strategy
This is a strategic direction suggested by Bowman’s clock, to indicate that a company that competes as a low-cost operator may choose to differentiate more or differentiators may compete more on cost for positional advantage. In Porter’s terms, though, a hybrid position risks being “stuck in the middle” unless the company is very dominant or the parameters of the industry are adjusting.
Hypercompetition
Competition characterised by intense and rapid competitive moves which rapidly erode company advantages and lead to less stable industry structures than before and in which superior profitability is more transitory. The only route to superior performance is through continually recreating and renewing competitive advantage.
Icarus Paradox
Based upon the Greek fable of the boy who flew too close to the sun with wings made of wax and subsequently plunged to his death, the paradox is that the greater one’s success the more likely one’s failure.
Impact matrix
A method for assigning values to expected pressures from the macro-environment in order for an organisation to assess the future nature of its context for which it must design an effective strategy.
Incubators
Incubators provide a helping hand to individuals and small groups seeking to get started (like Idealab, Impact Hub and BizDojo).
Industrial organisation
That aspect of the theory of strategy theory that focuses on the impact that the environment (“structure”) has on the conduct of industry incumbents and hence their performance. The Five Forces is the best known framework from this tradition.
Industry
The group of firms that produce/market products that are direct substitutes in terms of function and features.Industry Attractiveness A dimension of portfolio matrices that was originally linked to the industry life cycle model, with different implications for growth rates, and later became an increasingly complex multi-dimensional axis of different variables used to describe industry potential.
Industry forces
The dynamics between rivals, buyers, suppliers, entrants and potential substitutes in an industry that both emerge from and drive the conduct of firms in pricing, investment, branding, etc. The most popular model for industry forces is Porter’s Five Forces.
Industry life cycle (ILC)
The emergent pattern of growth, maturity and (sometimes) decline that characterises the outputs, revenues, composition and characteristics of industries and markets.
Industry structure
The underlying framework of an industry in terms of the relative number and size of firms and the degree to which industry output is concentrated across the spread of firms. The classical “pure” structures are perfect competition, monopolistic competition, oligopoly and monopoly.
Inflexion point
The point at which a trend changes markedly.
Innovation
The initial commercialisation of invention by producing and marketing a new product or service or by using a new method of production.
Innovation Radar
A spidergram that helps focus on how innovations will add value.
Institutionalism
This is a view that institutions reflect the deeper and more resilient aspects of social structure. Institutions project authoritative guidelines for social behaviour and are the framework within which organisations must operate.
Intangible resources
Non-physical resources such as reputation, brand, culture and knowledge.
Internal dependent stakeholders
These generally do not have much influence over strategy unless they are a critical resource – i.e. a leading research scientist or control a vital asset – such as a key client relationship.
International product life cycle
Raymond Vernon’s theory to explain why the location of different industries changes over time.
International strategy
When an organisation begins to expand across borders and is effectively matching its internal strengths with opportunities and challenges in geographically dispersed regions.
Joint venture
An equity joint venture is when two legally distinct organisations invest in a venture which may be a separate entity from the parents.
Knowledge society
The prevalent state of advanced societies toward the end of the 20th century where knowledge becomes a far more valuable resource than land or capital.
Learning organisation
Term developed by Arie de Geus in the book The Living Organization to describe a company that can “learn” or effectively manage change and improvement by changing itself as perceptions of the environment change.
Leverage
Long-term debt to equity capital. Used to determine the level of indebtedness of an organisation (also called gearing).
Licensing
A contract by which an organisation may manufacture, sell or distribute products/services of another firm for profit.
Localisation
The pressure to be responsive and adapt to local conditions.
Logical incrementalism
A philosophy of management achieving broad organisational goals by making strategic decisions in small steps. It benefits from flexibility but can be time consuming and inefficient.
Long tail economics
The notion that by the beginning of the 21st century advances in information technology and diversifying individual tastes were combining to enable more people to purchase and more organisations to sell minority or tailored products in an ever-broadening range of categories.
LTIP
Long-term incentive plan.
M-form
The multi-divisional (“M”) firm made up of a set of autonomous strategic business units (SBU) responsible for competitive strategy in their own industry/market domain.
Macro-environment
The broadest context within which organisations operate and over which they generally have very little, if any, control or influence.
Make or buy decision
This is the choice organisations face in terms of whether it is cheaper and/or more expedient to make something or buy it in the market.
Margin
The gap between what it costs to produce a product or service and what it can be sold for (or in not-for-profit situations the value that the product or service is perceived to provide). Can also relate to returns on investment as the profit between investment and return.
Market imperfections
Properties of the market that firms can take advantage of to overcome the price-levelling characteristics of perfect competition (e.g. if economies of scale are significant – an “imperfection” – then big firms can benefit from lower costs than smaller ones).
Market penetration
A growth option for an organisation that involves expanding in the same market area with existing products. In acquisition terms, this would be termed horizontal M&A. Market penetration is one of the quadrants used in Ansoff’s Growth Vector Components Matrix.
Matrix structure
An organisational design where the line of communication is shared between two or more decision-makers with different functional, geographic and business responsibilities.
MBSA
Management By Storying Around, coined by Tom Peters as a play on the idea of Management By Wandering Around. It suggests that good managers should be at the centre of their organisations, picking up on, and spreading, strategic stories.
Megatrend
Often gradual, slow changes over a significant period of time that can result in major challenges to organisations that may force adjustment or destruction.
Merger
The “M” in M&A, this is the bringing together of two (or more) organisations as equals. In terms of share price, no premium is payable in mergers. In practice mergers are relatively rare as one party generally is, or becomes, dominant in the process.
Middle-class effect
An empirical observation that an increase in GDP per capita can have a disproportionately larger positive effect on middle-class disposable income. This can be valuable information for organisations seeking to sell to certain customer segments.
Mission
An expression of the types of behaviour that an organisation sees as key to achieving its strategy, goals or vision. Generally expressed as a statement.
Mobility barriers
Within an industry these barriers may exist that prevent an organisation moving freely between different segments. Similar in concept to entry and exit barriers in Porter’s Five Forces, these barriers may be tangible and intangible.
Monopolistic competition
Each seller has a monopoly in its own product so that it is less likely to respond to competitor price changes.
Monopoly
An organisation with no, or very little, competition.
Monopsony
A market in which there is only one buyer.
Multi-domestic strategy
An organisation which emphasises differentiating products and services through adapting to local market needs.
Multinational Enterprise (MNE)
A company that operates in different countries.
National culture
There are many definitions for national culture. Geert Hofstede has proposed that differences between national cultures can be recognised along five dimensions of: (1) Power vs. distance; (2) Individualism vs. collectivism; (3) Masculinity vs. femininity; (4) Uncertainty avoidance; (5) Long-term vs. short-term orientation.
Negative sum game
Where an industry is in decline, putting downward pressure on organisational sales and profits, so that even taking market share from a competitor may not be sufficient to reverse the trend.
Net margin
Net income divided by Sales.
Next practice
An approach to business improvement that suggests that leap-frogging current best practice to do something new will be more effective than copying current best practice.
Non-dependent stakeholders
Stakeholders that influence organisations but are not dependent upon it. These include: (1) governmental bodies, which may be at the industry, regional, national and supranational levels; (2) technical organisations; and (3) opinion influencers.
Not-for-profit business (NfP)
Organisations whose purpose is generally for the betterment of society through charitable, humanitarian or educational ends. Trustees or owners do not benefit financially.
Objectives
Precise measurable outcomes of a strategy.
Oligopoly
An industry with a few organisations that become big enough to leverage cost reductions and have differentiation options.
Open systems view
This perspective emphasises that organisations do not stand in isolation but are interconnected across multiple levels.
Operating margin
Operating Profit divided by Sales.
Organic development
Growth of the organisation through internal development.
Organigraphs
An approach promoted by Henry Mintzberg and co-authors that suggests that it is more strategic to think about or draw an organisation’s structure by depicting what it actually does than through conventional means like organisation charts.
Paradigm
A term denoting “the way things are done around here” – the core capability of the organisation.
Parenting advantage
The ways in which a corporate “parent” (or centre) may add value to the individual businesses that make up a corporation.
Pareto principle
Better known as the 80/20 rule, this observation is that 20% of things will make 80% of difference, i.e. 20% of customers account for 80% of profits (and vice versa).
Path dependency
Where earlier events and actions influence subsequent decisions and events.
P/E ratio
Price earnings ratio. PE = share price divided by eps. It indicates a market’s expectations of the risk and/or growth rate of an organisation.
Perfect competition
A theoretical market structure in which a large number of small firms with the same process technology sell undifferentiated products through the same distribution channels to fully knowledgeable customers who have no switching costs.
PEST
An acronym to denote major macro-environmental pressures upon business. It stands for Political, Economic, Social, Technological change. In this book PEST has been subsumed within ESTEMPLE (see above).
Porter’s Diamond
Common name given the National Diamond Model of International Competitiveness which claims that different nations can draw on different factors and demand conditions, and other factors of industry structure and related and supporting industries (clusters), to develop comparative or absolute advantages.
Portfolio management
Techniques used by multi-business companies to determine the scope and nature of their business holdings.
Positioning
How the firm fits into its market/industry in terms of products, customers and capabilities in comparison with others in the same market/industry.
Post-acquisition integration matrix
A typology developed by Duncan Angwin and Maureen Meadows (2015) that identifies five distinct integration strategies that have different implications for (1) integration actions, (2) top management retention and (3) time to performance.
Power/interest matrix
A tool for distinguishing the relative importance of different stakeholders in forming a strategy for an organisation.
Price sensitivity
This is the extent to which variation in the price of a product affects consumers’ willingness to purchase. This is measured as the price elasticity of demand.
Principal–agent relationship
Ownership of the business (principal) is separated from control of wealth generation (management).
Process view
A view of strategy that sees examining the process by which strategies are developed as more important or interesting than earlier more static approaches.
Promising practices
Those ideas developed at lower levels of an organisation that may have strategic influence if they can be promoted up by middle and senior managers.
Punctuated equilibrium
Popularised by evolutionary scientists Stephen Jay Gould and Niles Eldredge, this is the observation that species remain stable for millions of years, changing very little, followed by a rapid burst of change that results in a new species.
Red ocean strategy
This occurs when organisations are competing against one another in an industry, so that the actions of one can damage another – hence the idea of blood-letting. Red oceans tend to be associated with the early maturity, maturity and decline phases of the industry life cycle in particular.
Regional clusters
Geographic concentrations of similar businesses which promote competition, concentration and reinforcement. The dynamics of clusters have been used to explain sustained performance/dominance in certain industries.
Related diversification
The joining of firms that have complementary process or market linkages.
Resource-Based Advantage
This means how organisations can achieve advantage over competitors with the deployment of resources and capabilities.
Resource-Based View
That aspect of strategy theory that focuses on the internal resources/capabilities of a firm and how it best uses these resources to achieve superior performance.
Retrenchment
The disposal of assets and resources in order to improve the strategic/financial position of the parent organisation.
Revolutionary transformation
An interventionist approach to strategic change that seeks quick transformation often through the use of external change agents (cf. evolutionary transformation).
Risk Assessment Matrix
A technique for assessing risk in terms of probability and impact.
ROA
Return on Assets. Operating Profit divided by Total Assets.
ROCE
Return on Capital Employed. This is calculated by Profit Before Interest and Tax Divided by Capital Employed. It indicates the organisation’s effectiveness in generating profit from assets.
ROE
Return on Equity. Net Income divided by Shareholders’ Equity.
ROIC
The percentage return an organisation is making over its cost of invested capital. Often a weighted cost of capital (WACC) is used for this calculation. Its is determined to work out how well an organisation is using the capital invested in it.
Routines
The working together of different actors and interdependent actions into a recognisable core pattern. Routines and routines assemblages are a primary means by which organisations achieve much of what they do.
S-curve
Graphic analogy to show that initial investments in innovation will outweigh returns before the latter pick up. Before returns begin to decline, new innovations in the “pipeline” should be able to replace the previous innovation. The S-curve is not unlike a sequential version of the product life cycle in form.
Scenario thinking
A structured process of thinking about and anticipating the unknowable future, without pretence of being able to predict the future or being able to influence the environment in a major way. “It is a discipline for rediscovering the original entrepreneurial power of creative foresight” (Pierre Wack).
Scope
This refers to the breadth of the organisation and may be defined in numerous ways such as geography, markets, products, services, capabilities or resources. It is important as well as it defines the boundaries of the organisation, in particular in terms of what is not within-scope.
Sell-offs
See Divestment.
Senior Strategy Directors
Senior executives (sometimes called CSOs) who interface between the CEO and the rest of the organisation. Their roles vary (see Powell and Angwin, 2012), but can include strategic planning, strategic thinking, negotiation, strategy implementation and organisational change (restructuring, disposals, acquisitions and alliances).
Sensography
A technique created by Angwin and Cummings (2011) to assess organisational strategy by unconventional means – relying on human senses and an integrative “coherence” concept.
Seven-S framework
This framework from McKinsey shows that key aspects of an organisation’s culture are both hard (tangible) and soft (intangible).
Six degrees of strategic innovation
Framework that utilises the value chain form to focus creative pursuits toward adding value strategically by providing greater value; reduced costs; greater volume; new ways of relating to markets; the effective crossing of conventional boundaries; or new ways of learning.
SMEs
Small and Medium-Sized Enterprises. This tier of business has often received significant attention from government as a potential engine for economic renewal.
Social business models
Unlike the generic term “business models”, which is generally taken to mean models for businesses oriented towards profit making, social business models are primarily oriented to other outcomes that benefit people, communities and society.
Social capital
The resources and capabilities that may accrue or be supported by personal and community networks.
Social influencers
Stakeholders in organisations who do not have an equity interest but may influence strategy. They include campaigners and activists.
Stakeholders
All those who are affected by the actions of the firm whether they are direct participants like employees or shareholders or indirect ones like the local community.
Strategic agility
The ability of organisations to steer a path between being rigid and flexible.
Strategic alliance
A general term to describe a range of formal arrangements between businesses which stop short of majority ownership. Strategic alliances can include joint ventures, marketing alliances, co-production arrangements, technology transfers and other collaborations.
Strategic Business Unit (SBU)
Part of an organisation for which there is a distinct market different from other SBUs.
Strategic clock
A framework that identifies different strategic directions an organisation might take in order to improve its competitive advantage.
Strategic drift
A term used to describe an organisation that is losing its ability to change sufficiently to remain in fit with its context. This may be due to structural rigidities and boundedness. The implication is loss of performance.
Strategic fit
This describes an organisation that is well tuned to its context and able to adjust in the face of changing external pressures.
Strategic groups
Distinctive sets of competitors adopting similar strategies aimed at similar customer segments where intergroup entry barriers (mobility barriers) prevent easy switching from one group to another.
Strategic Leadership Keypad
Promotes leaders being at the centre of things in strategic change combining a focus on being the lynchpin/communicator between the inside and key stakeholders outside of an organisation; distilling a vision; promoting new ideas from within or outside; and mapping a way to a desired future.
Strategic Option Grid
A technique for evaluating strategic options against strategic issues facing the organisation.
Strategic planning
A formalised step-by-step set of procedures for coordinating the strategy process.
Strategic purpose
What an organisation is for. It is captured in an organisation’s vision, mission, core values and objectives.
Strategy statements
Short statements (less than 35 words) that seek to capture what the organisation is, what it seeks to accomplish and who it seeks to serve. They generally contain vision, mission, core values, objectives, scope and strategic logic (why the organisation has, or will have, a clear advantage over competitors).
Strategic stories
Stories which may seem to be about small things (e.g. an act of kindness toward a customer) that are seen to encapsulate the core values or spirit that underpin an organisation’s strategy or desired strategy.
Strategy as Practice (S-a-P)
Similar to the emergent and process views of strategy in shifting the focus away from the content or artefacts of strategy, but looks more at what strategic managers actually do in the present than historical processes.
Stratography
A compound of strategy and geography created by Cummings and Angwin (2011) that promotes drawing or diagramming strategies rather than the conventional approach to communicating strategies just through text.
Structural rigidity
Configurations of assets and resources which may have conferred advantage in the past but become obstacles to change as external environments alter.
Styles of change
There are different styles of organisational change with important implications for how participants are affected and the speed and pace of transformation (see Leavy and Wilson scale, Fig 10.6).
Supplier power
A situation where suppliers can use their competitive advantage to secure good contracts and/or premium prices from industry competitors (e.g. Intel in computer hardware). Often used in conjunction with the Five Forces of Industry framework.
Surfing change
An evolutionary transformation analogy that promotes the view that argues for looking for good waves emerging within an organisation and then surfing (i.e. promoting) these in order to move toward desired strategies.
Sustainable competitive advantage
A competitive advantage that can be protected and maintained (or grown) over time because it is difficult for competitors to copy or compete with.
Sustainable development
An approach that promotes development that meets the needs of current generations without compromising future generations’ ability to meet their needs.
Sustainable growth
This means the ability of an organisation to keep on growing and generally means that it is achieving sufficient profitability to reinvest in order to maintain growth.
Switching costs
How easy or hard it may be for buyers to shift their allegiance to other competing organisations (e.g. low switching costs tend to lead to lower margins in an industry).
SWOT
An acronym to denote Strengths, Weaknesses, Opportunities, Threats. The main purpose of this analysis is to determine the extent to which an organisation “fits” with the demands of its context.
Synergy
A systems perspective whereby 2+2=5. Often used in corporate strategy as a reason why many business units should be grouped together in a corporation.
Systems thinking
Advocates seeing the interconnectedness between things rather than separating out “units of analysis” such as organisations, the environment, customers, etc.
Temporal Impact Matrix (TIM)
A matrix estimating the impact of various ESTEMPLE factors at different time periods.TMT Top Management Team.
TOWS
A variation on SWOT (see above) whereby external opportunities and threats are considered before categorising an organisation’s relative strengths and weaknesses.Advocates argue that this approach provides more meaningful analysis that the conventional SWOT.
Transaction costs
These are the costs an organisation incurs engaging with buyers and suppliers. They are subject to the relative bargaining power between the organisation and these other parties.
Transnational strategy
This seeks to optimise trade-offs between global and multi-domestic strategies by dispersing the organisation’s resources according to the most beneficial locations.
Transparent pricing
Where the buyer and seller both know the price and no intermediary is involved.
Triple bottom line
Reporting environmental and societal performance as well as profitability which has been the traditional and only “bottom line”.
Unrelated diversification
The joining of firms that have no common processes or markets.
Value chain
The linked set of activities/functions within a firm that interact to enable the final value-creating offering (product/service) of the firm. At the industry level, it can also mean the total set of value-adding links from the first supplier to the final user of a product/service.
Value chimera
A combination model created by Cummings and Angwin (2004) that integrates Porter’s value chain and Ansoff’s matrix to show how organisations attempting to rationalise their supply chain, and yet compete in different ways in different markets, internalise tensions.
Value constellation
A more organic view of value creation that uses more porous and systems thinking analogies to examine the value-adding process than the conventional linear and bounded value chain model. Related analogies are value web or value net.
Value net
A framework that adds complementors to the Five Forces of Industry.
Value proposition
A statement about how customers will benefit from a product or service.
Vertical integration
The joining of firms that are upstream (backward: suppliers) or downstream (forward: customers).
VRIO
Stands for Valuable, Rare, Inimitable and supported Organisationally. Can be used as a checklist to examine whether an organisation has a sustainable competitive advantage (i.e. if its strategy can lead it to “tick” most or all of these attributes). Often related to the RBV.
Virtual organisation
Organisations held together through collaboration and networking rather than through formal structures.
Vision
A shared view of where an organisation sees its strategy leading it to in the future. Often expressed in the form of a statement.
Voluntarism
A philosophical term emphasising the primacy of the will.
WACC
This stands for the Weighted Average Cost of Capital and is the rate a company is expected to pay on average to all its security holders to finance its assets.
White spaces
The areas in a strategic group analysis that are not occupied by any organisations and may present new potential strategic opportunities.
Worst practice
Those who suggest that organisations can learn from analysing their weaknesses or failures, as well as their successes, advocate studying worst practice as much as best practice.
Zero sum game
When an organisation can only gain at the expense of its competitors.
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