Marcus Glossary of Strategy Terms

action-response cycles : the way outcomes of competitive battles are determined not by
the moves of any single company but by the actions and responses of many companies
that interact with each other and alter their strategies in response to moves their
competitors make.

agency theory: a theory holding that the obligation of the company is to put shareholders
first as they are the ones risking the most.

balanced scorecard: multidimensional approach of measuring corporate performance

through financial and non-financial factors.

barriers to entry: barriers within an attractive industry that deter new companies from
entering and secure the place of existing companies.

best-value strategy: how some companies combine the benefits of low cost and
differentiation and create best value through such means as team based product
development, closely integrated supply chains, and reliance on total quality management
(TQM) principles in order to

business plan: a plan consisting of: a description of the business, an external analysis, an
internal analysis, an implementation schedule, an end-game strategy which indicates
when the business will be viable, financial projections, and an analysis of risk.

business strategy: how a firm competes in a given business; whether it should it be low-
cost, differentiated, or some combination of the two such as best value.

capabilities: the sets of skills and routines that determine how employees in a company
relate both internally and externally and that allow the company to exploit its resources in
ways that are valuable and difficult for other firms to imitate; includes coordination and
control systems, the company’s culture, its production knowledge, its experience and long
standing relations with a variety of stakeholders such as government, and knowledge of
customers; may be compared to software, while the resources are the company’s hardware.

classic approach to management theory: a top down approach which relies on

accountability and control starting with the board and top management and extending to
all employees who are divided according into specialties and issued commands they are
expected to follow.

community model (of capitalism): common in Japan and some European countries in
this form of capitalism managers are considered senior members in the company and
shareholders are one of many stakeholder groups that have to be satisfied; managers are
freer from short-term pressures imposed by stock market prices and quarterly profits.
comparative advantage: what a company does absolutely best in comparison to all other
firms.

competencies: link key resources and capabilities and combine, transform, and channel
them in a few very specific ways to satisfy customer needs; they provide access to new
markets, give customers benefits, and are very hard for competitors to imitate.

co-opetition: ways in which companies are able to compete and cooperate at the same
time in order to broaden markets and create new value and thereby escape zero-sum
games where one company benefits at another’s expense.

corporate strategy: focuses on the scope of the company; what business or businesses it
should be in.

culture : the key values, beliefs, and assumptions about how an organization should
conduct its business; treat its employees, customers, suppliers, and others; and foster
innovativeness and flexibility.

cross-impact matrix: used in the creation of scenarios to illustrate how one trend may
intersect with another.

decline: a stage within industry evolution that sees falling customer bases, prices, and
margins; companies exit or are squeezed out during this stage.

Delphi method: developed by Rand Corporation as way to elicit expert opinion about
important trends in society, technology, and government it combines the beliefs of
different experts to sharpen the predictions made about developments in these areas.

diamond framework: Porter’s reformulation of the five forces to reflect greater

globalization it includes factor conditions (production inputs), demand conditions,
competitive conditions (firm, strategy, structure, and rivalry), and related and supporting
industries.

differentiated position: a way a firm can distinguish itself through low-volume sales of
high-margin items.

distinctive competence: a unique accumulation of capabilities and rigidities that an

organization has acquired over time, a sense of pride and purpose that can just as much
keep the firm from making the important strategic adjustments that it should make as
facilitate these adjustments.

eco-efficiency: the process of reducing the ecological impact that a company has while
maintaining the delivery of competitively priced goods and services.

economies of scope: the potential cost savings from joining together in the same
company the production of even disparate products provided that they rely on the same
management structure, administration systems, marketing departments, R&D, and so on;
this concept is often used as a justification for the cost saving that are supposed to result
from mergers and acquisitions

economic growth: A positive change in the level of production of goods and services by
a country over a certain period of time.

economic value added (EVA): Arguably, the most important way to judge over time
whether a company is winning competitive battles since it compares what the company is
earning for shareholders in relation to the cost of capital.

effect uncertainty: the uncertainty about the effects of macroenvironmental factors as

they make their impact felt on a particular firm – what do changes in these conditions
mean not in a general sense but for an individual firm?

embryonic stage: the beginning stage in industry evolution when prices are high,
margins low, and profits still not certain ; products are of lesser reliability; competition
has yet to take hold, and there is not much export activity.

entrepreneur: an individual, group, or organization that discovers and starts to exploit

new business or other opportunities while assuming the risks.

exporting production: outsourcing or setting up production and distribution in a foreign

company.

external analysis: assessment of the industry environment, macroenvironment, and

stakeholder groups.

franchising: a company disseminates its business methods and models, provides

franchisers with a brand identity and a business image, and gains a percentage of that
franchised company’s profit.

GDP per capita: gross domestic product per capita is the total output of goods and
services for final use produced by an economy per person; it indicates how wealthy the
individuals in a country are at a given moment in comparison to individuals in other
countries.

global product-market strategy: a single dominant design or business model; this

approach takes advantage of economies of scale and scope and is a highly efficient, low-
cost way to expand internationally.

greenfield operations: when a company starts up its own manufacturing, production,

marketing, or other sets of activities in a foreign country rather then relying on joint
ventures, alliances, or acquisition to access already existing sources of that activity.
Gross Domestic Product (GDP): The total value of goods and services produced by a
nation over a given period, usually 1 year, GDP consists of four components: personal
consumption, private investment, government spending, and exports.

growth stage: a stage during industry evolution when prices go down, and profits raise;
product reliability increases as does the competition and exports also begin to rise.

horizontal integration: a company that increases market share by purchasing companies

that share the same business line.

human relations approach to management theory: rather than being hierarchical and
based on command and control structures this approach emphasizes employee
development, motivation, and learning company values, informal coordination, two-way
communication, performance, and not following orders

industry analysis: an assessment of the attractiveness of an industry based on the five

forces – the power of customers, suppliers, competitors, new entrants, and substitutes.

industry environment: the context in which a company operates.

industrial organization (IO) economics: a branch within the field of economics that
focuses on the formation of monopolies and near-monopolies.

innovation: the process of putting an invention or other important discoveries into

widespread use.

internal analysis: the processes that a company uses to examine its strengths and
weaknesses in order to better compete with other companies.

invention: the creation of a new idea and/or its demonstration in prototype form.

just-in-time (JIT) : an approach to inventory management where a company produces

only what the customer wants, in the quantities the customer actually requires, and when
the customer needs it.

leading-edge industries: industries that depend upon newly emerging technologies that
provide the impetus for economic growth.

legalistic model (of capitalism): a model of capitalism that emphasizes the obligations
that managers as employees of the owners (the shareholders) owe their employers.

licensing: rather than directly produce and sell its products abroad a company can
establish a legal arrangement with a foreign firm that can produce and sell the company’s
products for a fee.
low-cost position: distinguishing oneself through the high-volume sale of low-margin
items.

M-form: A corporate strategy where high-level executives make strategic choices,

interact with shareholders and allocate resources to separate, independent business units.

macroenvironment: broad overarching forces that impact the industry environment

including law, politics, technology, demography, society, economic climates, and the
physical environment.

management theory: various approaches to scrutinizing, investigating, and breaking

down an organization’s strengths and weaknesses” including the classic approach, the
human relations approach, and contingency theory.

material-balance models: a model for analyzing an organization’s production

processes based on an analysis of inputs and outputs, whose goal is to increase usable
products and decrease waste.

maturity: a stage within industry evolution profits are lower as more companies are
competing for market share; innovation is rare and overcapacity begins; exports blossom
since there are few new consumers at home.

matrix structure: a structure within a company’s internal environment where an

employee may have multiple reporting arrangements based on the clients they serve, the
geography covered, and/or their functional expertise.

micro segmenting: dividing customers into finer and finer segments in order to serve
smaller and smaller categories of customers and to provide them with more precisely
what they need.

mission: typically represents what the company has been good at in the past, what it has
accomplished, where its employees take pride in their achievements.

multidomestic product-market strategy: adapts and modifies a product or service to

each separate country or region; extracts high margins and charges a premium price for
delivering customized products and services that meet the needs of individual markets

natural parity: the expected, even competition found in most industries.

outliers: companies that are able to break the natural parity that prevails in their
industries and sustain competitive advantage (or on the other side companies that realize
competitive disadvantage) for long periods such as a decade or more;
Porter’s five forces: The forces that need to be examined in order to determine industry
attractiveness: (1) competition among existing rivals, (2) new entrants, (3) substitutes, (4)
customers, and (5) suppliers; see industry analysis above.

portfolio planning: a corporate strategy that helps large, complex organizations manage
their separate business units by focusing on the direction, coordination, control, and
profitability of the different business units.

positioning: a way to gain distinction in an industry by occupying a unique market niche

that other companies cannot easily imitate.

postindustrialism: an era following industrialism which is categorized by a move from

goods to services; the prominence of theoretical knowledge; and the preeminence of
technology and technological assessment.

prisoner’s dilemma: a situation in game theory where it is rational for each player –
not knowing how the other player will act -- to act in a way that will make both players
worse off.

process technologies: enable firms to improve their ability to make goods and services.

product technologies: improvements in the goods and services themselves.

realized strategies: outcomes are not determined by what any single company intends
but by the moves and countermoves of competitors responding to changing conditions
over time.

resources: an organization’s basic financial, physical, and human capital

resource-based view (RBV): a view that helps to explain why some firms within
industries consistently outperform others; rather than market power (the industrial
organization view) it emphasizes the ability of firms to reap higher returns from
resources through the way they configure their capabilities and competencies

response uncertainty: uncertainty about what a firm should do based on its knowledge
of conditions in the macroenvironment.

risk: odds of success are known with certainty; to be contrasted with uncertainty (see
below).

scenario: a depiction of a possible future based on the intersection of various trends over
time.

sensitivity analysis: an analysis based on different assumptions that estimates different

levels of payoffs and their associated probabilities.
separate business units (SBUs): closely related businesses or groups of businesses that
have been divided by a larger parent company.

seven-S analysis: the seven characteristics that Peters and Waterman used to describe
excellent firms: (1) Strategy (2) Structure (3) Systems (4) Style (5) Staffing (6) Skill (7)
Shared values.

shared values: unity of purpose – a part of management that Peters and Waterman
found was often slighted by U.S. managers in comparison to their Japanese counterparts.

skill: the capabilities to compete and generate new business -- a part of management that
Peters and Waterman found was often slighted by U.S. managers in comparison to their
Japanese counterparts

smart (business) designs: better ways of meeting customer needs through the use of
detailed and systematic information about customers; this information allows firms to
satisfy customer needs for integrated solutions rather than for separate products and
services; better designs often breakdown barriers between a business and its customers
by eliminating redundant supply channels; they take advantage of special niches firms
occupy in the value chain and they tend to provide small segments of customers with
customized products and services that meet their unique needs.

staffing: matching jobs with the people available to hold them in an organization -- a
part of management that Peters and Waterman found was often slighted by U.S.
managers in comparison to their Japanese counterparts

stakeholders: those who affect and are directly affected by a company’s actions and
results.

stakeholder theory: as opposed to agency, it holds that managers are accountable to an

array of outside and internal stakeholders to whom managers must provide incentives
(wages to workers, taxes to government, products to customers, etc. ) to induce their
involvement.

state uncertainty: uncertainty about conditions in the macroenvironment of the firm; for
instance where the economy is headed, what the next government will be, how will
technology change, and so on.

strategic inflection point: a major point of departure, a point of no return, where a

company’s competitive environment is radically altered due to new technologies,
different regulatory conditions, or changing customer preferences; in response to these
changes, the company is forced to alter its strategies.

strategy: the extent to which an organization has a logical sense of the actions it has to
take to gain sustainable competitive advantage over the competition, improve its position
in relation to customers, and allocate resources to high-return activities – an aspect of
management that Peters and Waterman found was often overemphasized by U.S.
managers in comparison to their Japanese counterparts

strategic groups: groups of companies with similar positions competing in the same
industry space competing for very similar groups of customers; these companies must
find finer and finer points of distinction between them in order to stand out.

structure: a coherent form dividing labor, allocating responsibilities, coordinating tasks,

and assuring accountability -- an aspect of management that Peters and Waterman found
was often overemphasized by U.S. managers in comparison to their Japanese
counterparts.

style: extent of actual alignment between management and employees and the
organization’s real strategic needs as opposed to lip service -- -- an aspect of management
that Peters and Waterman found was often slighted by U.S. managers in comparison to
their Japanese counterparts

sustainable society: a society based on 3 principles – protection of the environment,

economic equity, and economic growth; in such a society the needs of future generations
are not sacrificed for the consumption of the current generation.

sustained competitive advantage (SCA): the goal of strategic management, which is to

consistently outperform relevant competitors for long periods of time, such as a decade or
more; the aim of strategy, in other words, is to be a dynasty, not a one time winner. One
time winners can succeed by luck. Being a dynasty requires skill.

systems: description of how critical processes are carried out in an organization -- an

aspect of management that Peters and Waterman found was often overemphasized by
U.S. managers in comparison to their Japanese counterparts.

SWOT analysis: Strengths, Weaknesses, Opportunities, and Threats analysis; examining

the internal strengths and weaknesses of a firm, comparing them with external
opportunities and threats, and choosing a strategy based on the analysis.

technology: knowledge of how to convert the factors of production into goods and
services.

technology-push model: innovation starts with discoveries in basic science and

engineering, and from these discoveries come new goods and services to the marketplace.

timing dilemmas : the dilemma that a company faces about whether to go first and be a
pioneer with a new strategy or to be a fast follower and allow another firm to take these
risks; often the issue is deciding whether to continue with an old product or utilize a new
product, business model, or practice.
total quality management (TQM): management method established by such gurus as
Edward Deming TQM is designed to achieved enhanced productivity and greater quality
at the same time; it therefore breaks with Porter’s generic strategies which assume that a
firm has to choose between low cost or high quality. Under TQM, a firm has a few
trusted suppliers rather than having power over many suppliers in accord with Porter’s
framework.

transnational product-market strategy: combines global design and local

responsiveness; to achieve best value, it both exploits scale economies and adapts to local
conditions.

uncertainty: odds of success are unknown; to be contrasted with risk (see above).

value chain: the primary and support activities which a firm undertakes to deliver
products and services to customers; each can be broken down to determine how
profitable it is (what are its margins).

value net: rather than being stuck in zero-sum game in which one company prevails at
other companies’ expense, companies can work together with other companies and with
their suppliers and customers to create greater value for all of them.

vertical integration: a company that combines production, distribution, and/or sales

within its own structure.

vision: typically based on an understanding that the senior leaders of a company have of
a company’s future possibilities and where it should be moving next. What should the
company be aiming for so that it can excel in the future? A vision typically provides
employees with a sense of direction. It tells them where the company should be heading.
All companies are caught between what they have been good at in the past (their mission)
and what they would like to be good at in the future (their vision).