Essential Unit Vocabulary

Benchmarking – The comparing of a business’s performance to industry leaders and rival competitors. Areas of a business to benchmark include quality, profitability, customer satisfaction, and operations. By benchmarking, businesses can have a greater idea of where they stand against rivals and what it takes to match high-performing industry leaders.

Capabilities – An integrated and coordinated set of actions taken to deploy resources to achieve a specific task or a desired end state. Capabilities are the source of a firm’s core competencies; when capabilities are valuable, rare, costly to imitate, and non-substitutable they are considered a core competency. When capabilities meet the conditions of a core competency, they are a potential source of competitive advantage.

Complexity – Companies today are faced with growing complexity with respect to environmental, political and competitive changes. In response to such pressures, companies often reflect external complexity within their internal environments. They may address increasing cost pressures and accelerating innovation by building a matrix organization structure or add new processes to address evolving market needs. In isolation, each of these responses makes sense, but in combination, they create significant problems. Complexity leads to uncertainty and vice-versa creating a devolving downward cycle impacting organizational performance and decision making.

Core Competency – A set of capabilities that are capable of leading to a sustainable competitive advantage through exhibiting all characteristics of valuable, rare, costly to imitate and non-substitutable. Core competencies can be technical skills, knowledge, and even resources; anything that is unique and which the company controls or gives it an advantage in the market. Typically, a company does not outsource core competencies.

Distinctive Competency – A unique competency or capability that distinguishes a company from its competitors. It is also a firm-specific strength that allows a company to gain competitive advantage by differentiating its products and/or achieving lower costs than its rivals. This YouTube video may help understand the concept.

Operational Excellence – The practice by which a firm operates where all operational decisions are integrated and coordinated and allow the firm to charge a competitive price while incurring a best-of-class cost in order to generate above average returns.

Sustainable Competitive Advantage – when a company has a competitive advantage over its competitors in terms of assets, product or service attributes, or corporate abilities for an extended period of time making it extremely hard for competitors to meet or surpass. Most advantages related to price, features, and similar attributes are short lived because they are easy to imitate. A competitive advantage is more likely to be sustainable when it incorporates some difficult to copy attributes such as outstanding people, culture, brand, intellectual property, business property and unique and difficult to find resources.

Tangible vs. Intangible Resources – Tangible Resource include those concrete physical assets such as cash, inventory, machinery that can be touched or seen or counted. Intangible Resource are those nonphysical assets such as patents, website domains, manuscripts and intellectual property that cannot be seen or counted. When a firm employs tangible and intangible resources through a concentration on strategy, it generates capabilities.

Uncertainty – Uncertainty can exist in the internal environment which in turn can affect the external environment.  In the company, you can plan for the firm in regards to the industry they are in and try to predict what customers want but there is no guarantee it will pay off.  This can lead to uncertainty in decisions, never knowing 100% if your managerial decision will be successful for the company. Decisions start from within with planning strategically hoping they will pay off in the external environment and drive profits.

Value Chain – A set of activities that an organization carries out to create value for its customers. The value chain includes the full range of activities that a business goes through to bring a product from conception to delivery. Through value chain analysis organizations can ensure that they are positioned to earn above average profits.

Value Chain Activities (Primary) – The activities performed within an organization that directly add value to the firm’s product or service. Examples will vary based upon the firm and its value chain, but these activities might include logistics, procurement, operations, marketing, sales, customer support and others.

Value Chain Activities (Support) – The activities that the organization performs to assist the primary activities to gain the competitive advantages. In other words, firm activities that add value indirectly, but are necessary to sustain primary activities. Examples will vary based upon the firm and its value chain, but these activities might include research and development (R&D), information systems, operating management, human resources, finance, accounting, general management and others.

Value Chain Analysis – A process where a firm identifies the primary and support activities that add value to its product or service and then analyze these activities to reduce costs through outsourcing or to increase product differentiation. VCA identifies core competencies by determining those primary activities that are valuable, rare, costly to imitate and non-substitutable.

Vertical Integration  – Vertical integration occurs when a company expands its business into areas that are at different points on the same production value chain. Therefore, complete vertical integration would dictate that a company controls all steps of the value chain forward to the end product as well as backward to the most raw materials; e.g. such as when a manufacturer owns its suppliers and distributors.

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Strategic Management 2E by John Morris is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License, except where otherwise noted.

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