Chapter 1

 strategy
o set of goal-directed actions a firm takes to gain and sustain superior
performance relative to competitors
 competitive advantage
o superior performance relative to other competitors in the same industry or the
industry average
 competitive parity
o performance of two or more firms at the same level
 competitive disadvantage
o underperformance relative to other competitors in the same industry or the
industry average
 sustainable competitive advantage
o outperforming competitors or the industry average over a prolonged period
 firm effects
o firm performance attributed to the actions managers take
 industry effects
o firm performance attributed to the structure of industry in which the firm
competes
 strategic positioning
o
 business model
 value proposition
 profit formula

Chapter 2
 scenario planning
o strategy-planning activity in which managers envision different what-if scenarios
to anticipate plausible futures
o analysis stage
 managers brainstorm to identify possible future scenarios, with critical
inputs from different hierarchies and different functional areas
o formulation stage
 make plans for the different scenarios
o implementation stage
 implement the plan that fits the scenario that emerges & adjust as
necessary
 top-down strategic planning
o a rational, top-down process through which mgmt. can program future success;
typically concentrates strategic intelligence and decision-making responsibilities
in the office of the CEO
 emergent strategy
o any unplanned strategic initiative undertaken by mid-level employees of their
own volition
 intended strategy
o outcome of a rational and structured, top-down strategic plan
 realized strategy
o generally a combination of its top-down strategic intentions and bottom-up
emergent strategy
  planned emergence
o strategy process in which organizational structure and systems allow bottom-up
strategic initiatives to emerge and be evaluated and coordinated by top
management
 serendipity
o strategic initiatives developed through random events, pleasant surprises,
accidental happenstance
 autonomous action
o strategic initiatives developed by lower-level employees
 strategic business unit (SBU)
o a standalone division of a larger conglomerate, with its own profit-and-loss
responsibility

 corporate-level strategy
o concerns questions relating to where to compete (industry, markets, geography)
 business-level strategy
o concerns the question of how to compete (cost leadership, differentiation, or
integration)
 functional-level strategy
o concerns the question of how to implement business strategy

Chapter 3
 PESTEL framework
o A framework that categorizes and analyzes an important set of external forces
that might impinge upon a firm. These forces are embedded in the global
environment and can create both opportunities and threats for the firm.
o Political environment
 Processes/actions of gov’t that can influence the decisions and behaviors
of firm
o Legal environment
 Laws, mandates, regulations, and court decisions which can have a direct
bearing on a firms profit potential
o Economic Factors
 Growth rates, interest rates, levels of employment, price stability,
currency exchange rates
o Sociocultural Factors
 Culture, norms, demographic shifts, and values for society that are
dynamic and differ across groups
o Technological Factors
 Application of knowledge to create new processes and products
o Ecological Factors
 Broad environmental issues effect business resources and tolerance for
certain business models
 Industry
o A group of (incumbent) companies that face the same set of suppliers and
buyers; these firms tend to offer similar products or services to meet specific
customer needs
 industry structure
 five forces model
o a framework developed by Michael Porter that identifies 5 forces that determine
the profit potential of an industry and shape a firm’s competitive strategy
o the stronger the five forces, the lower the profit potential
o the weaker the five forces, the higher the profit potential
 threat of entry
o the risk that potential competitors will enter an industry
entry barriers that help incumbent firms:
o economies of scale
 industries benefit from being bigger in size by getting cost reductions
o capital requirement
 how much money does it take to start in the industry,
 ex: restaurants are easy to open because they’re cheap, compared to a
pharmaceutical company – pharmaceutical industry is very profitable
o network effect
 if a product/service’s value increases if the amount of people using the
product increases
 ex: Facebook would be useless if no one else used it
o switching cost
 if it is hard for a customer to switch products to move to a new product, a
customer is less likely to switch
 ex: switching from iPhone to android – you wouldn’t do it even if it was
free
 entry barrier
o obstacles that determine how easily a firm can enter an industry. Entry barriers
are often one of the most significant predictors of industry profit potential
 exit barrier
o obstacles that determine how a firm can leave an industry
 forward integration
o suppliers that make gears and frames decides they can make the whole bicycles
 backward integration
o buyers can make the product instead of buying it from supplier
 commodity
 industry concentration
 perfect competition
 monopoly
 oligopoly
 complement
o a product, service, or competency that adds value to the original product
offering when the two are used in tandem
 strategic group
o the set of companies that pursue a similar strategy within a specific industry
 strategic position
 o a firms strategic profile based on value creation and cost. The goal is to generate
as large a gap as possible between the value the firm’s product or service creates
and the cost required to produce it (V-C)
 mobility barriers
o industry-specific factors that separate one strategic group from another

Chapter 4
 resource
o any assets that a firm can draw on when formulating and implementing strategy
 capability
o organizational and managerial skills necessary to orchestrate a diverse set of
resources and deploy them strategically
 core competence
o unique strengths, embedded deep within a firm, that allow a firm to differentiate
its products and services from those of its rivals, creating higher value for the
customer or offering products and services of comparable value at lower cost
 tangible resource
o resources that have physical attributes and thus are visible
o labor, capital, land, buildings, plant, equipment, supplies

 intangible resource
o resources that do not have physical attributes and thus are invisible
o culture, knowledge, brand equity, reputation, IP – patents, copyrights,
trademarks, trade secrets
o these usually aide in becoming the firms core competency
 resource heterogeneity
 o assumption in the resource-based view that a firm is a bundle of resources and
capabilities that differ across firms
 resource immobility
o assumption in the resource-based view that a firm has resources that tend to be
“sticky” and that do not move easily from firm to firm
 knowledge diffusion

 VRIO framework
o a theoretical framework that explains and predicts firm-level competitive
advantage. A firm can gain a competitive advantage if it has resources that are
valuable (V), rare (R), and costly to imitate (I). the firm also must organize (O) to
capture the value of the resources
 costly to imitate/substitute resource
o one of the four key criteria in the VIRO framework. A resource is costly to imitate
if firms that do not possess the resource are unable to develop or buy the
resource at a comparable cost
 substitution
 strategic equivalent
 isolating mechanism
o barriers to imitation that prevent rivals from competing away the advantage a
firm may enjoy
 causal ambiguity
o a situation in which the cause and effect of a phenomenon are not readily
apparent
 path dependence
o a situation in which the options one faces in the current situation are limited by
decisions made in the past
 social complexity
o a situation in which different social and business systems interact with one
another
 firm value chain
 o the internal activities a firm engages in when transforming inputs into outputs;
each activity adds incremental value. Primary activities directly add value;
support activities add value indirectly
 primary activities
o firm activities that add value directly by transforming inputs into outputs as the
firm moves a product or service horizontally along the internal value chain
 support activities
o firm activities that add value indirectly, but are necessary to sustain primary
activities

Chapter 5
 accounting profitability
o return on invested capital
 shareholder value creation
o what is the total return to the shareholders; return on risk capital
o external performance metric
limitations:
o stock prices can be volatile making it difficult to assess firm performance – in
short term
o overall macroeconomic factors all have direct bearing on stock prices
o efficient market theory may be incorrect
o company overall – not product line / industry
 efficient market hypothesis
o all available information about a firm’s past, current state, and expected future
performance is embedded in the firm’s stock price
 risk capital
o the money provided by shareholders in exchange for an equity share in a
company; it cannot be recovered if the firm goes bankrupt
 return to shareholders
o return on risk capital that includes stock price and appreciation plus dividends
received over a specific period
 market capitalization
o a firm performance metric that captures the total dollar market value of all of a
company’s outstanding shares at any given point in time (market cap = # of
outstanding shares x share price)
 economic value created
o difference between value (V) and cost (C), or (V-C); sometimes called economic
contribution
o amount of total perceived consumer benefits equals the maximum willingness to
pay
 opportunity cost
o the value of the best forgone alternative use of the resources employed
 profit/producer surplus
o difference between price charged (P) and the cost to product (C), or (P-C)
 consumer surplus
o 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)
 balanced scorecard
o strategy implementation tool that harnesses multiple internal and external
performance metrics in order to balance financial and strategic goals
 business models
o organizational plan that details the firm’s competitive tactics and initiatives; in
short, how the firm intends to make money
o razor-razor-blade
 initial product is sold at a loss or given away for free to drive demand for
complementary goods, company makes its money on the replacement
part needed
o subscription
 users pay access to product or service whether they use the product
during the payment term or not
o pay-as-you-go
 user pays for only the services he or she consumes, used for utilities
power and water.
o Freemium
 Basic features of a product are provided free of charge but the used must
pay for premium services such as advanced features or add-ons.
 triple bottom line
o combination of economic, social, and ecological concerns that can lead to a
sustainable strategy