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CommonTerminologyin
Strategy
A advantage
AbsorptiveCapacityafirmsabilitytoassimilate
newknowledgebasedonthefirmspriorrelated
knowledge
Acquisitionsanarrangementinwhichtheassets
andliabilitiesofthesellerareabsorbedintothoseof
thebuyer
AdverseSelection(1)thetendencyforthosethat
aremostatrisktoseekvariousformsofinsurance,
or(2)precontractualopportunismthatariseswhen
eachpartycannotfreelyobservetheothersnet
benefit
Appropriabilitythedegreetowhichafirmcan
extractvaluefromaninnovation
ArrowsInformationParadoxinthemarketfor
information,toaccuratelyvalueapieceof
information,thatinformationhastobefully
revealedtoapotentialbuyer
B CompetitiveScopetheextenttowhichafirm
BackwardIntegrationwheninputsourcesare
movedintotheorganization
BarrierstoEntryindustrycharacteristicsthat
reducetherateofentrybelowthatwhichwould
levelprofits
BarrierstoImitationcharacteristicsoffirm
resourcesandcapabilitiesthatmakethemdifficult
toduplicate
BarrierstoMobilityfactorsthatpreventthe
movementoffirmsacrossstrategicgroup
boundariesinresponsetoprofitdifferences
BertrandCompetitionamodelofoligopolistic
competitionwhereoutputisnotdifferentiatedand
competitionisbasedonprice;suggestsrentsare
competedawayevenwithtwofirms
Boundariesthescopeoffirmoperations
C economicrents
Capabilitiesthecombinationanduseoffirm
resourcestoproduceaction
CapabilitiesAnalysisanassessmentofthe
likelihoodthatafirmsresourcesandcapabilitieswill
provideasustainedcompetitiveadvantagerelative
tocompetitors
Cartelagroupoffirmsthatexplicitlyagreetoset
pricesand/ortolimitoutput
CausalAmbiguitysituationswherecompetitors
areunabletounderstandclearlythelinkbetween
resourcesandcapabilitiesandcompetitive
Collusionwhenfirmscoordinateactionssoasto
gainmarketpoweroverconsumers
CommonPropertyGoodsresourcestowhich
everyonehasfreeaccess
CompetitiveAdvantagecharacteristicsofafirm
thatallowittooutperformrivalsinthesame
industry
CompetitiveDynamicstheseriesofadvantage
seekingcompetitiveactionsandresponsestakenby
firmswithinaparticularindustry
CompetitiveGroupsclustersoffirmswithinan
industrythatsharecertaincriticalasset
configurationsandfollowcommonstrategies
CompetitivePositioningthechoiceofstrategies
andproductsegmentswithinanindustry
CompetitiveRivalrytheintensitywithwhichtwo
ormorefirmsjockeywithoneanotherinthepursuit
ofbettermarketpositions
targetsbroadproductmarketsegmentswithinan
industry
CompetitorAnalysisanassessmentofafirms
competitorscapabilities,performance,and
strategies
Complementaritiesagroupofassetsthatwork
togethertomutuallysupportaparticularstrategy
ComplementaryAssetsthoseassetsnecessaryto
translateaninnovationintocommercialreturns
ConcentricDiversificationamovebyafirminto
related,yetdistinct,linesofbusiness
Conglomeratefirmsthatareinmultiple,unrelated
linesofbusiness
CoreCompetenciesthesubsetofafirms
resourcesandcapabilitiesthatprovidecompetitive
advantageacrossseveralbusinesses
CorporateStrategystrategiesbywhichfirmscan
leveragetheirpositionacrossmarketstogarner
CostLeadershiptheabilitytoproduceproductsat
thelowestcost,relativetocompetitors,with
featuresthatareacceptabletocustomers
CournotCompetitionamodelofoligopolistic
competitionwherepricesaresetbythemarketand

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competitorsdecideoutput;suggestseconomicrents
greaterthefewerfirmswithintheindustry
CrossElasticityofDemandpercentagechangein
thedemandforonegoodinresponsetoa1%
changeinthepriceofasecondgood
D FiveForcesAnalysisanassessmentofanindustrys
DecisionTreeAnalysisatoolforassessingthe
payoffstostrategicactionsunderuncertaintyand
rivalry
Differentiationtheabilitytoprovidevalueto
customersthroughuniquecharacteristicsand
attributesofafirmsproducts
Diversificationtheprocessbywhichafirmmoves
intonewlinesofbusiness
DiversificationMatricesarangeoftoolsfor
understandingthescaleandscopeofthefirmbased
onthepotentialofindividualbusinessesandthe
waystheyinfluenceoneanother
Divestituresellingoffassetsofthefirm
E makersbasedontheactionsavailabletothemand
EconomicRentsreturnsinexcessofwhatan
investorexpectstoearnfromotherinvestmentsof
similarrisk(alsocalledaboveaveragereturns)
EconomiesofScaleunitcostsdeclineasoutput
increases
EconomiesofScopecostsofproductionoftwo
linesofbusinessruntogetherarelessthanthesum
ofeachrunseparately
EfficientMarketPrinciplewhenmarketsare
efficient,goodsituationsdonotlast
ElasticityofDemandpercentagechangein
demandinresponsetoa1%changeinthepriceof
thatgood
Entrepreneurshipthedevelopmentofnew
productsandprocesses(i.e.,innovation)
EnvironmentalAnalysisanassessmentofthe
elementsinbroadersocietythatcaninfluencean
industryandthefirmswithinit
EscalationofCommitmentstickingtoacourseof
actionbeyondalevelthatarationalmodelwould
prescribe
ExcessCapacitythecapacitytoproduceadditional
unitswithoutsubstantialincrementalcostsor
additionstofixedcapacity
ExitCostscostsincurredwhenafirmexitsa
business(e.g.,earlypaymentsofcontractual
obligationssuchassalariesorenvironmental
cleanupcosts)
F
FirstMoverAdvantagesadvantagesheldbyafirm
byvirtueofbeingthefirsttointroduceaproductor
service
profitabilitybyanalyzingtheintensityofrivalry
amongindustrycompetitorsandthethreatsposed
bynewentrants,buyers,suppliers,andproduct
substitutes
ForwardIntegrationwhenoutputoutletsare
movedintotheorganization
FreeRidingnotpayingforanonexclusivegoodin
theexpectationthatotherswill
FriendlyTakeoveranacquisitionwhereatarget
firmwelcomesofferfromacquirer
G
GameTheorytheformalanalysisofconflictand
cooperationamongintelligentandrationaldecision
theassociatedfuturepayoffs
Governancethestructureofinterandintrafirm
relationships
H
Hierarchytheorganizationofauthorityand
decisionmakingwithinafirm
HoldupProblemwhenonewhomakesa
relationshipspecificinvestmentisvulnerabletoa
threatbyotherpartiestoterminatethatrelationship
soastoobtainbettertermsthanwereinitially
agreed
HostileTakeoveranacquisitionwheretargetfirm
resiststheacquisition

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I Monitoringanactivitywhoseaimisdetermining
IndustrialOrganizationViewperspectivethat whethercontractualobligationsofanotherparty
aboveaveragereturnsderiveprimarilyfrom havebeenmet
industrycharacteristicsthatreducecompetitive Monopolyamarketwithonlyoneseller
pressureswithinindustries Monopsonyamarketwithonlyonebuyer
IndustryLifeCyclestheperiodicevolutionof MoralHazard(1)thetendencyforthosewho
marketsspurredbyinnovationandtechnological obtainsomeformofinsurancetotakemorerisk,or
change (2)postcontractualopportunismthatariseswhen
InformationAsymmetrieswhenonepartyknows actionsarenotfreelyobservable
morethananother MultipointCompetitionwhenfirmscompetewith
Institutionsvariousnonmarketstakeholderssuch oneanotheracrossmultiplemarkets
asthegovernment,advocacygroups,communities, MutualDependencewhentwofirmshave
andunions relativelysimilaramountstogainfromanalliance
InternationalStrategythelogicbehindproduction
orsalesofproductsinmarketsoutsidethefirms N
domesticmarket NegativeExternalitiesunpricedcostsimposedon
oneagentbytheactionsofasecond
J NetworkExternalitieswhenthevaluetoa
JointVentureindependentfirmcreatedbyjoining customerofaproductincreasesasthenumberof
theassetsfromtwoormorecompanies compatibleusersincreases
Nicheaspecializedpartofthemarket,oftensmall
NonequityAlliancecontractbetweentwoormore
K firmsthatdoesnotinvolveequitysharing
Keiretsusnetworksofcloselylinkedfirmsthat
shareequity,commoninJapan

L ofaninformationadvantagesoastopursuehisor
LearningCurvesreductionsintheunitcosts
associatedwithcumulative,lifetimeexperiencein
anactivity
LeveragedBuyoutarestructuringactionwhereby
apartybuysalltheassetsofapublicfirmandtakes
thefirmprivate
Licensingwhenafirmauthorizesanotherfirmto
manufactureorsellitsproducts(inreturnfora
royaltytypically)
LimitPricingholdingpriceslowerthanwhatis
profitmaximizingintheshorttermtodeterentry
M difficultyobservingtheagentsbehavior
MarketLeaderafirmwithsignificantmarketshare
whomaysetpricesfortherestofanindustry
Mergersanarrangementinwhichtheassetsand
liabilitiesoftwoormorefirmsareintegratedinto
onefirm
MinimumEfficientScalethesmallestoutputfor
whichunitcostsareminimized
MinorityEquityInvestmentpurchasebyonefirm
ofanoncontrolling,minoritystakeinanotherfirm
O
Opportunismwhenanindividualtakesadvantage
herownselfinterest
OpportunityCostthevalueofthenextbest
opportunitywhichmustbesacrificedinorderto
engageinaparticularactivity
P
PayoffMatrixatoolforassessingthepayoffsto
individualstrategicactionsgivenlikelycompetitor
responses
PrincipalAgentProblemthepotentialfor
opportunismbyanagentwhenaprincipalwho
wantstheagenttoengageinsomebehaviorhas
PublicGoodsresourcesthatarenonrival(marginal
costiszero)andnonexclusive(peoplecannotbe
excludedfromconsuming)
R
RealOptionsinvestmentsthatenable(butdonot
require)futurestrategicactions
3

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RentProducingAssetsresourcesandcapabilities
thatconferaboveaveragereturns
ReputationPricingslashingpricesinresponseto
marketentrytoestablishareputationforbeinga
fiercecompetitor
ResidualRightsOfControltherighttodetermine
theuseoffirmassetsintheabsenceofcontract
specifications
ResourceBasedViewperspectivethatabove
averagereturnsderiveprimarilyfromwithinthefirm
viavaluableandrareresourcesandcapabilitiesthat
arehardtoimitateorsubstitutefor
Resourcesinputsintoafirmsproduction
processmaybetangible(thosethatcanbeseen
andquantified)orintangible(e.g.,reputation,
knowledge)
S TacitCollusionwhenfirmstakeactionssoasto
ScenarioAnalysisatoolformakingstrategic
decisionsinthefaceofmultipleuncertaintiesby
aggregatingthoseuncertaintiesintoalimitedsetof
coherentfutureoutcomes
SchumpeterianCompetitionatheoryof
competitionproposedbyJosephSchumpeterin
whichinnovation(notefficiency)isthehallmarkof
marketbasedeconomies
SpecificAssetsassetsthathavevalueonlyinavery
narrowuse
Spilloversknowledgegainedbyoneagentmaybe
observedbyanotheragent
StakeholderAnalysisanassessmentofthe
pressuresrelevantconstituencies(stakeholders)
bringtobearonafirm
Stakeholderstheindividualsandgroupswhocan
affectandareaffectedbythestrategicactionsofa
firm
StrategicActions(1)individualactionstomeet
strategicmissionandstrategicintent,and(2)actions
thatrequiresignificantresourcecommitments
StrategicAlliancespartnershipsbetweenfirmsin
whichtheirresourcesorcapabilitiesarecombinedto
pursuemutualinterests
StrategicGroupsclustersoffirmswithinan
industrythatsharecertaincriticalasset
configurationsandfollowcommonstrategies
StrategicIntentaplantoleverageafirmsinternal
assetstoaccomplishthefirmsgoals
StrategicMissionastatementofafirmsunique
purposeandthescopeofitsoperationsinproduct
andmarketterms
StrategicPlanasynthesisofanalysesintoasetof
futurestrategicactionsforthefirm
StrategyMapatoolforidentifyingstrategicgroups
andunexploitednicheswithinanindustry
SwitchingCostsonetimecostscustomersincur
whenbuyingfromadifferentsupplier
SWOTAnalysisageneralassessmentofthe
strengthsandweaknessesofafirmandthe
opportunitiesandthreatsofthefirmsindustry
Synergytheexcessvaluecreatedbybusinesses
workingtogetheroverthevaluethosesameunits
createwhenworkingindependently
SynergyTrapoverpayingtoacquireafirminthe
pursuitofsynergy
T
gainmarketpoweroverconsumerswithoutexplicit
agreements
TacticalActionstrategicactionthatiseasyto
implementorreverse(e.g.,pricing)
TheoryoftheFirmanattempttoexplainthe
boundariesoffirmsbyviewingafirmasanexusof
contractswhereresidualrightsofcontrolare
maintained
TightlyHeldAssetsassetsthatarebothrare(not
widelypossessed)andarehardtoimitateor
substitutefor
TransactionCostscostofcarryingoutatransaction
ortheopportunitycostsincurredwhenan
efficiencyenhancingtransactionisnotrealized
V
ValueChainAnalysisatoolforidentifyingafirms
valueaddingresourcesandcapabilities
VerticalForeclosureverticalintegrationthatcuts
offacompetitorsaccesstothesupplychain
VerticalIntegrationtheprocessinwhicheither
oneoftheinputsourcesoroutputbuyersofthefirm
aremovedinsidethefirm
W
WinnersCursethewinnerofanauctionisthe
playerwhohasthehighestvaluationoftheasset
andthuslikelyovervaluestheasset

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