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Industry effects
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Firm performance attributed to the structure of the industry in which the firm competes
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Firm effect
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Firm performance attributed to the actions strategic leaders take
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Industry
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a group of incumbent companies that face more or less the same set of suppliers and buyers
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Industry analysis
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A method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry.
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Strategic position
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a firm's strategic profile based on the difference between value creation and cost (V-C)
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Five forces model
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A framework that identifies five forces that determine the profit potential of an industry and shape a firm's competitive strategy.
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Threat of entry
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The risk that potential competitors will enter an industry
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Entry barriers
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Obstacles that determine how easily a firm can enter an industry and often significantly predict industry profit potential
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Network effects
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The value of a product or service for an individual user increases with the number of total users
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Competitive industry structure
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Elements and features common to all industries, including the number and size of competitors, the firms' degree of pricing power, the type of product or service offered, and the height of entry barriers.
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Strategic commitments
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Firm actions that are costly, long-term oriented, and difficult to reverse
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Exit barriers
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Obstacles that determine how easily a firm can leave an industry
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Shareholders
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Individuals or organizations that own one or more shares of stock in a public company
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Risk capital
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The money provided by shareholders in exchange for an equity share in a company; it cannot be recovered if the firm goes bankrupt
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Total return to shareholders
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Return on risk capital that includes stock price appreciation plus dividends received over a specific period
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Market capitalization
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A firm performance metric that captures the total dollar market value of a company's total outstanding shares at any given point in time.
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Economic value created
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Difference between value (V) and cost (C), or (V - C).
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Reservation price
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The maximum price a consumer is willing to pay for a product or service based on the total perceived consumer benefits
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Value
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The dollar amount (V) a consumer attaches to a good or service; the consumer's maximum willingness to pay; also called reservation price.
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Producer surplus
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Another term for profit, the difference between price charged (P) and the cost to produce (C), or (P - C); also called profit.
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Profit
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Difference between price charged (P) and the cost to produce (C), or (P-C); also called producer surplus
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Consumer surplus
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Difference between the value a consumer attaches to a good or service (V) and what he or she paid for it (P), or (V-P)
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Opportunity costs
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The value of the best forgone alternative use of the resources employed
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Balanced scorecard
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Strategy implementation tool that harnesses multiple internal and external performance metrics in order to balance financial and strategic goals
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Business-level strategy
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The goal-directed actions managers take in their quest for competitive advantage when competing in a single product market
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Strategic trade-offs
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Choices between a cost or value position. Such choices are necessary because higher value creation tends to generate higher cost.
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Differentiation strategy
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Generic business strategy that seeks to create higher value for customers than the value that competitors create
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Cost-leadership strategy
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Generic business strategy that seeks to create the same or similar value for customers at a lower cost
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Scope of competition
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The size - narrow or broad - of the market in which a firm chooses to compete
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Focused cost-leadership strategy
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Same as the cost-leadership strategy except with a narrow focus on a niche market
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Focused differentiation strategy
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Same as the differentiation strategy except with a narrow focus on a niche market
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Economies of scope
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Savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology
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Economies of scale
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Decreases in cost per unit as output increases
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Minimum efficient scale (MES)
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Output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale
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Diseconomies of scale
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Increases in cost per unit when output increases
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Blue ocean strategy
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Business-level strategy that successfully combines differentiation and cost-leadership activities using value innovation to reconcile the inherent trade-offs.
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Value innovation
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The simultaneous pursuit of differentiation and low cost in a way that creates a leap in value for both the firm and the consumers; considered a cornerstone of blue ocean strategy
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Value curve
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Horizontal connection of the points of each value on the strategy canvas that helps strategists diagnose and determine courses of action
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Strategy canvas
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Graphical depiction of a company's relative performance vis-a-vis its competitors across the industry's key success factors
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Markets-and-technology framework
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A conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions.
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Incremental innovation
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An innovation that squarely builds on an established knowledge base and steadily improves an existing product or service
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Radical innovation
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An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge.
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Winner-take-all markets
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Markets where the market leader captures almost all of the market share and is able to extract a significant amount of the value created
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Innovation ecosystem
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A firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making
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Architectural innovation
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A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets
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Disruptive innovation
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An innovation that leverages new technologies to attack existing markets from the bottom up
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Reverse innovation
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An innovation that was developed for emerging economies before being introduced in developed economies. Sometimes also called frugal innovation.
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Platform business
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An enterprise that creates value by matching external producers and consumers in a way that creates value for all participants, and that depends on the infrastructure or platform that the enterprise manages
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Platform ecosystem
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The market environment in which all players participate relative to the platform
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