MGMT 6030 Book Key Terms

Asymmetric threats

A business that can enter the industry of another business while the second business is less able to enter the industry of the first business. A complementor in this position has a degree of power over the second business.

Economic profit

A company's residual wealth, calculated by deducting the cost of capital from its operating profit. Also known as economic value added (EVA)

First-Mover Advantage

A competitive advantage that a firm can derive by being first to market

Horizontal differentiation

A condition arising in a market in which different consumers prefer different goods - that is, no good is acknowledged by all consumers as the best

Vertical differentiation

A condition arising in a market in which goods differ only in quality and, while all consumers prefer goods of higher quality, they differ in their willingness to pay for quality

Complementor

A firm in one industry whose products or services increase the value of the products or services of a firm in another industry. A company that provides complements

Vertical Integration

A firm that moves up and down the value chain in its industry, either towards the sourcing of raw inputs or towards selling to end users

Platform leader

A firm that owns an industry platform

Competitive Advantage

A firm's ability to create a larger gap between the amount its customers are willing to pay and the costs it incurs. To create this advantage, a firm must perform activities more effectively or distinctively than its industry rivals

Competitive advantage

A firm's ability to preform activities more effectively or distinctively than its industry rivals

Transformation

A fundamental change in how the business is done in order to adapt to major changes in the business environment, whether external (such as disruptive technology) or internal (such as poor performance). Types of them include adopting a new organizational strategy, executing a turnaround (which may or may not include a restructuring), and implementing a new business process, such as quality program or new IT platform.

Cost advantage

A lower cost of production due to access to less expensive inputs, more efficient processes, more favorable locations, a more skilled workforce, more advanced technologies, or less waste

Customer Concentration or Monopsony power

A market situation in which there are fewer customers than there are vendors, and thus the customers have greater bargaining power

Vertical heterogeneity

A measure of asymmetric strength of network effects between different groups of customers

Horizontal heterogeneity of customers

A measure of the symmetric strength of network effects between different groups of customers

Value Network

A network of organizations that provides some type of value to customers

Innovation

A new technology that significantly improves a product or service on a dimension of performance that current or new customers value

Spot Market Transactions

A one-time transaction occurring between a buyer and seller that have no ongoing relationship with each other

Industry Platform

A platform technology that shapes the evolution of an industry

Complement

A product or service that increases the value of other products or services. Razors and razor blades are the classic example

Complementary Goods

A product whose demand increases along with that of another good: As the price of the second good decreases the demand of the complementary good increases

Milestone

A progress check or assessment that represents a decision point. Appropriate for innovation streams or early-stage businesses, in which many variables (such as production time or overhead costs) are quickly changing or unpredictable. They are also used when metrics are unavailable or could be counterproductive. They are softer and often related to learning: for example "have we acquired a piece of knowledge yet?"

Opportunity Gap

A qualified assessment of the discrepancy between current results and those achievable by successfully pursuing a new opportunity, whether a new product, technology, service, or business model. The other trigger for rethinking strategy formulation or execution

Performance Gap

A quantified shortfall between actual results and desired results. One of the triggers for rethinking strategy formulation or execution

Technological Leapfrogging

A situation in which a new firm's technological offering is superior to those of incumbents

Network Effect

A situation in which the value of an offering to a customer depends on how many other customers have chosen the same offering

Value proposition

A statement which conveys why a buyer should buy a company's product or service

Differentiation strategy

A strategy based on offering products or services that are superior in quality, reliability, or prestige to those of competitor and thus command a higher price

Dual competitive advantage

A strategy based on providing a superior product or service for which there is a lower willingness to pay while incurring a higher cost than the competition

Dual competitive advantage

A strategy based on providing a superior product while achieving lower cost than the competition

Low-cost strategy

A strategy based on the ability of a firm to provide a product or service at a lower price than its competition

Forward Integration

A strategy by which a business takes over the functions located between it and its ultimate customers, such as distribution centers and retailers

Backwards integration

A strategy in which a business takes over functions once provided by its supplier

Bargaining power of suppliers

A suppliers ability to increase costs, reduce quality, or restrict availability to a customer

Platform Technology

A technology that is essential for coordinating suppliers and buyers in order to deliver value to consumers

Sustaining Technology

A technology that offers improved performance along a dimension that current customers value

Matrix Structure

A type of organizational structure that is organized around products as well as functions or geographies (or both). In such a structure, a sales manager for Product A would report to two people, the head of Product A and the company's head of sales. Common in large, global, multiproduct organizations

Standards War

A winner-take-all situation in which firms with different product designs compete to make their design the industry standard

Value Chain

An analytic tool that illustrates the sequence of activities that constitute the economic performance and capabilities of a firm

Skunk works

An innovation project developed by a small group of people in a closed environment removed from the company's main operations. The project team is given special resources and works on an accelerated basis to develop what is generally a radical innovation. Term originated with a Lockheed project in WWII.

Technology Strategy

An integrated set of choices about how to use new technology to produce superior financial returns in the long run

Cost drivers

Any factor that change the cost of performing an activity

Platform Businesses

Businesses that enable interactions between two or more distinct groups of customers. Newspapers, for instance, bring together readers and advertisers. Also known as two-sided markets

Barriers to entry

Characteristics of an industry or market that make it more difficult for new entrants to compete

Institutional Voids

Economies in which both physical infrastructure and the markets for financial, physical, and human resources are underdeveloped, regulatory agencies and mechanisms for legal enforcement are weak, and reliable information is limited

Added value

For a participant or a firm, the value created by all participants in a transaction minus the value remaining when the participant or firm in question is eliminated

Revenue Model

How firms make money for the product or service they provide

Frequency

How often a given transaction occurs

Barriers to exit

Impediments that hinder a firm that wants to leave a market or industry

Substitutes

In economics, two products are considered substitutes when a rise in the price of one increases the demand for the other

Open Innovation

Innovation that occurs through joint efforts of a community of firms, individual developers, and end users

Performance Metrics

Measure various business activities (or outcomes) that indicate whether an organization is meeting its operational or strategic goals. Examples include market share, customer profitability, revenues, percentage increase in sales over a period, service-call response time, number of items shipped on time.

S-Curve

Pattern of increases relative to effort and time in which the increases are slow, then rapid, then slow. The patterns identify how performance and market diffusion increase relative to effort and time

Increasing Returns to Scale

Relationship between two elements where one increases disproportionately to increases in the other. In new technology the two elements are profits and customers

Information Goods

Technological products and services for which the marginal cost is almost zero

Disruptive Technologies

Technologies that offer inferior performance, at least initially, along dimensions that current customers value and are therefore dismissed or ignored by incumbents

Dynamic Capabilities

The ability to adapt, integrate, and reconfigure organizational skills and resources to respond to changing environments, including evolving markets, customer priorities, and technologies. It enables companies to leverage skills and assets to achieve the strategies called for by their emerging as well as mature businesses.

Ambidexterity

The ability to simultaneously manage existing core business - maintaining stability and overseeing continuous improvement - and to pursue new opportunities - specifically, nurturing experimentation and discontinuous change through innovation streams. It is critical to sustaining competitive advantage and to an organization's enduring success. It applies to an organization as well as its leaders.

Customer switching costs

The additional cost a consumer incurs in moving from one vendor's products or services to another vendor's products or services

Attackers advantage

The advantage an entrant with a new technology may have when it is difficult for incumbents to divert resources away from profitable and high-margin current technologies

Congruence

The alignment between strategy formulation and execution, as well as between and among the four organizational elements (or building blocks) by which strategy execution is carried out. All these relationships must be in harmony. (The four organizational elements are critical tasks, the forma organization [metrics, rewards, and organizational structure], skills and competencies, and culture.) It enables the business to achieve its business design.

Mass customization

The approach of using information and production technologies to tailor products to individual customers

Complementary Assets

The assets associated with a product or service that are necessary to commercialize it successfully

Unrestricted bargaining

The assumption that participants or firms are free and able to form coalitions with all other firms or participants and thus there are no information asymmetries

Incumbent Advantage

The benefits a business enjoys from being the first to compete in an industry

Switching cost

The cost a consumer or business incurs when moving from one product or service to another

Economies of scale

The cost advantage that comes from an increase in output

Economies of density

The cost advantage that comes from geographic proximity

Creative Destruction

The creation and destruction of businesses through revolutions in technology

Bargaining power of buyers

The customers ability to influence the price, availability, or quality of the products of a business, which depends on the number of customers a business has, the importance of a customer to a business, switching costs, and a number of other factors

Economies of Scale

The decline in cost of production per unit as the volume grows

Learning Curve

The decline in production costs that comes from the cumulative volume of production

Economies of Scope

The decline of the cost of production due to the sharing of resources across products or services

Value Capture

The difference between the price a firm receives from its customers and the price it pays to its suppliers for inputs

Early adopters

The first users to see the benefits of a new technology and who adopt it

Exploration

The fostering of experimentation and discontinuous change through innovation in pursuit of new business opportunities; the other side of ambidexterity

Corporate Strategy

The framework a firm uses to decide the scope of businesses it should operate in, as well as whether and how to structure the relationships between these businesses, in order to achieve superior returns

Demand-side benefits of scale or Network effect

The gain in the value of a product to a consumer as the number of consumers increases

Hypercompetition

The idea that competitive advantages are particularly difficult to sustain in specific industries or periods of time

Indirect Network Effect

The increase in the value of a product that comes from the greater availability of complements

Direct Network Effect

The increase in value of a product as more people use it. Facebook is an example

Cross-side Network Effect

The increase in value to one type of customer if another group of customers increases its use of the same product. An example is video game consoles. They become more appealing to gamers as more game developers join the platform

Structural Inertia

The inertia, or resistance to change, fostered by the structural characteristics of an organization - its complexity and interdependence among structures, systems, and processes.

Cultural Inertia

The institutionalize learning and common expectations that are reflected in the informal norms, values, social networks, and other elements of culture.

Same-side Network Effect

The market effect that reflects how one party's use of a product or service makes that product or service more valuable for other, similar uses

Willingness to pay

The maximum amount a customer is willing to pay in order to obtain a good or service

Supplier opportunity cost

The minimal amount a supplier is willing to accept for the efforts and resources required to produce a product or service

Supplier Opportunity Costs

The minimum amount a supplier is willing to accept for the efforts and resources required to produce a product or service

Exploitation

The optimization of efficiencies and the implementation of continuous improvements in an established business to extract maximum advantage; one of two sides of ambidexterity. Organizations balance exploiting and exploring to sustain competitive advantage and long-term success

Uncertainty

The possibility that a transaction will not lead to the desired results because the contract was incomplete

Commercialize

The process by which a firm brings a product or service to market and makes money form it

Ecosystem

The set of mutually dependent suppliers, customers, and complementors that work together to create value

Technology

The way an organization creates outputs from inputs

Value Creation

The wedge between willingness to pay and supplier opportunity costs

Positive Synergy

When a transaction is moved out of the spot market, the wedge between willingness to pay and supplier opportunity costs increases

Dominant Design

the design that becomes the standard in the market

Asset specificity

the extent to which the assets required to produce a good or service can be redeployed for some other purpose

Negative Synergy

when a transaction is moved out of the spot market, the wedge between willingness to pay and supplier opportunity costs decreases