Essential Terminology in Strategic Management
Strategic Management Glossary: Key Business Concepts
Added Value
The difference between the full cost of a product and its financial value in the market. Achieving high added value is one of the primary objectives of business strategy.
Backward Vertical Development (Integración Vertical Hacia Atrás)
The strategy of buying your suppliers. This involves the acquisition of a part or the entirety of the backward direction in the supply chain.
BCG Matrix
A planning tool used to rationalize and understand a business’s product portfolio. Products are categorized according to their market share and the rate of market growth.
Benchmarking
A collection of competences used to compare certain aspects of business practice against industry standards or competitors.
Competitive Advantage
The ability of an organization to outperform its competitors. These are the skills that differentiate you from the rest. It forms the base of your decisions and the way you face your competitors.
Competitive Position
An approach to business strategy arguing that an organization’s success rests upon how it positions itself in respect to its environment.
Core Competences
Also known as distinctive capabilities. These are capabilities only performed by companies whose performance is superior to the industry average. Competences become core when they form part of, or are the reason for, the competitive advantage of the business.
Cost Leadership
The approach to business where the aim is to achieve higher than industry average performance by keeping unit costs lower than the competitors.
Deliberate Strategy
A strategy that is planned in advance and follows a rational process. It is part of a formal plan and is meant to happen.
Differentiation
The approach to business where the aim is to achieve higher than industry average performance by being distinctive instead of cheap. (A generic strategy framework).
Emergent Strategy
A strategy that is not planned. It may be just as effective as a deliberate strategy, has no specific objectives, and begins with a consistent pattern of behavior.
Entry Barriers
The obstacles that a newcomer in an industry needs to negotiate in order to gain market entry. For example: cost of capital.
Focus Strategy
Competitive advantage achieved through serving one or more specific market segments.
Forward Vertical Development (Integración Vertical Hacia Delante)
The strategy of buying a client to gain a competitive advantage. This is typically done by an acquisition or merger with a buyer.
Generic Strategy
A distinctive posture that an organization adopts with consideration to its overall strategy.
Horizontal Development
A merger, fusion with, or acquisition of a business or a competitor operating at the same stage, typically pursued to gain a competitive advantage.
Human Resource
One of the four resource inputs that can be used to create competitive advantage. It is composed of the skills of employees and of anyone else who is part of the organization.
Hybrid Strategy
An approach to generic strategy that incorporates elements of both cost leadership and differentiation.
Intangible Resource
Resource inputs that are not physical but which are often associated with the most important factors causing competitive advantage (e.g., brand reputation, intellectual property).
Intermediaries
Entities that act as middlemen, buying and packaging products and services from their owners and selling them on to customers.
Internal Growth
Growth in the size of the business, becoming bigger, without the use of mergers and acquisitions. This growth relies solely on the organization’s own resources and is a strategic decision.
Joint Ventures (Unión Temporal de Empresas)
A fusion, union, or collaboration between two or more companies for a limited period.
Key Issues
The summary of the strategic analysis that is derived from the SWOT analysis.
Management Contracts
A popular form of joint development method whereby the ownership of the business is separated from its management.
Mergers
External growth involving the union of two partners of more or less the same size.
Mission Statements
The mission is the base of the organization’s strategy; it is the basic aim. It serves as the basic statement of all the strategic purposes.
Paradigm
The way of looking at the world held by a person or organization.
Perishability
The characteristic of being liable to spoil (que se caduca). This means the product has a time limit for consumption.
Related Diversification
External growth achieved by developing new products for new markets that are related to the existing business.
Stakeholders
Any person who can be affected by the achievement of an organization’s objectives (e.g., clients, employees, shareholders).
Strategy
There are many definitions, but the best understood is that which is explained in terms of 5 P’s: Plan, Ploy, Pattern, Perspective, and Position. A strategy is the process performed in order to close the gap between where an organization is now and where it aims to be in the future.
Strategic Objectives
Objectives pursued at the highest level of an organization, contrasting with operational objectives.
Vertical Development
The acquisition of forward or backward capabilities, such as through merger or acquisition of a supplier or a customer.