Glossary of Business Terms

Added Value - The difference between the market value of the output and the cost of the inputs to the organisation.

Architecture - The network of relationships and contracts both within and around the organisation.

Backward Integration - The process whereby an organisation acquires the activities of its inputs, e.g. manufacturer into raw material supplier.

Benchmarking - The comparison of practice in other organisations in order to identify areas for improvement. Note that the comparison does not have to be with another organisation within the same industry, simply one whose practices are better at à particular aspect of the task or function.

Bounded rationality - The principle that managers reduce tasks, including implementation, to à series of small steps, even though this may grossly oversimplify the situation and may not be the optimal way to proceed.

Branding - The additional reassurance provided to the customer by the brand name and reputation beyond the intrinsic value of the assets purchased by the customer.

Breakeven - The point at which the total costs of undertaking a new strategy are equal to the total revenue from the strategy.

Bretton Woods Agreement - System of largely fixed currency exchange rates between the leading industrialised nations of the world. In operation from 1944 to 1973.

Business Process Re-engineering - The replacement of people in administrative tasks by technology, often accompanied by Delayering and other organisational change.

Capability-Based Resources - Covers the resources across the entire value chain and goes beyond key resources and core competencies.

Change Options Matrix - This links the areas of human resource activity with the three main areas of strategic change: work, cultural and political change.

Changeability of the Environment - The degree to which the environment is likely to change.

Competitive Advantage - The significant advantages that an organisation has over its competitors. Such advantages allow the organisation to add more value than its competitors in the same market.

Competitor Profiling - Explores one or two leading competitors by analysing their resources, past performance, current products and strategies.

Complete Competitive Formula - The business formula that offers both value for money to customers and competitive advantage against competitors.

Complementors - The companies whose products add more value to the products of the base organisation than they would desire from their own products by themselves - for example, Microsoft software adds significantly to the value of à Hewlett Packard Personal Computer.

Concentration Ratio - The degree to which value added or turnover is concentrated in the hands of a few firms in an industry. Measures the dominance of firms in an industry.

Contend - The constructive conflict that some strategists argue is needed by every organisation.

Content of Corporate Strategy - The main actions of the proposed strategy.

Context of Corporate Strategy - The environment within which the strategy operates and is developed.

Contingency Theory of Leadership - Argues that leaders should be promoted or recruited according to the needs of the organisation at a particular point in time.

Controls - Employed to ensure that strategic objectives are achieved and financial, human resource and other guidelines are not breached during the implementation process or the ongoing phase of strategic activity.

Co-operation - The links that bring organisations together, thereby enhancing their ability to compete in the market place.

Co-operative Game - Has positive pay-off for all participants.

Core Competencies - The distinctive group of skills and technologies that enable an organisation to provide particular benefits to customers and deliver competitive advantage. Together, they form key resources of the organisation that assist it in being distinct from its competitors.

Core Resources - The important strategic resources of the organisation, usually summarised as architecture, reputation and innovation.

Corporate Governance - The selection of the senior officers of the organisation and their conduct and relationship with owners, employees and other stakeholders

Corporate Strategy - The pattern of major objectives, purposes or goals and the essential policies or plans for achieving those goals. Note that this is not the only definition.

Cost/Benefit Analysis - Evaluates strategic projects especially in the public sector where an element of unquantified public service beyond commercial profit may be involved. It attempts to quantify the broader social benefits to be derived from particular strategic initiatives.

Cost of Capital - The cost of the capital employed in an organisation, often measured by the cost of investing outside in a risk-free bond coupled with some element for the extra risks, if any, of investing in the organisation itself.

Cost-plus Pricing - Sets the price of goods and services primarily by totalling the costs and adding a percentage profit margin.

Cultural Web - The factors that can be used to characterise the culture of an organisation. Usually summarised as stories, symbols, power structures, organisational structure, control systems, routines and rituals.

Culture - See Organisational culture and International culture. It is important to distinguish between these two quite distinct areas of the subject.

Customer-Competitor Matrix - Links together the extent to which customers have common needs and competitors can gain competitive advantage through areas such as differentiation and economies of scale.

Customer-Driven Strategy - The strategy of an organisation where every function is directed towards customer satisfaction. It goes beyond those functions, such as sales and marketing that have traditionally had direct contact with the customer.

Customer Profiling - Describes the main characteristics of the customer and how customers make their purchase decisions.

Cyclicality - The periodic rise and fall of a mature market.

Delayering - The removal of layers of management and administration in an organisation's structure.

Demerger - The split of an organisation into its constituent parts with some parts possibly being sold to outside investors.

Derived Demand - Demand for goods and services that is derived from the economic performance of the customers.

Differentiation - The development of unique benefits or attributes in a product or service that positions it to appeal especially to a part (segment) of the total market.

Dirigiste Policy - Describes the policies of a government relying on an approach of centrally-directed government actions to manage the economy.

Discontinuity - Radical, sudden and largely unpredicted change in the environment.

Discounted Cash Flow (DCF) - The sum of the projected cash flows from a future strategy, after revaluing each individual element of the cash flow in terms of its present worth

Division - A separate part of multi-product company with profit responsibility for its range of products. Each division usually has a complete range of the main functions such as finance, operations and marketing.

Double Loop Learning - The first loop of learning checks performance against expected norms and adjusts where necessary. The second, more fundamental loop re-appraises whether the expected norms were appropriate in the first place.

Economic Rent - Any excess that a factor earns over the minimum amount needed to keep that factor in its present use.

Economies of Scale - The extra cost savings that occur when higher volume production allows unit costs to be reduced.

Economies of Scope - The extra cost savings that are available as a result of separate products sharing some facilities.

Emergent Change - The whole process of developing a strategy whose outcome only emerges as the strategy proceeds. There is no defined list of implementation actions in advance of the strategy emerging.

Emergent Corporate Strategy - A strategy whose final objective is unclear and whose elements are developed during the course of its life, as the strategy proceeds.

Empowerment - The devolution of power and decision-making responsibility to those lower in the organisation.

Environment - Everything and everyone outside the organisation: competitors, customers, government, etc. Note that 'green' environmental issues are only one part of the overall definition. See also Changeability of the environment and Predictability of the environment.

E-S-P Paradigm - This analyses the role of government in strategy development along three dimensions: Environment, System and Policies.

Ethics - The principles that encompass the standards and conduct that an organisation sets itself in its dealings within the organisation and with its external environment.

Expansion Method Matrix - Explores in a structured way the methods by which the market opportunities associated with strategy options might be achieved.

Experience Curve - The relationship between the unit costs of a product and the total units ever produced of that product, plotted in graphical form.

Fit - The consistencies, coherence and congruence of the organisation.

Floating and Fixed Exchange Rates - Currency exchange rates, such as the rate of exchange between the US$ and the German DM, are said to float when market forces determine the rate depending on market demand. They are fixed when national governments (or their associated national banks) fix the rates by international agreement and intervene in international markets to hold those rates.

Formal Organisation Structures - Those structures formally defined by the organisation in terms of reporting relationships, responsibilities and tasks.

Forward Integration - When an organisation acquires the activities of its outputs, e.g. manufacturer into distribution and transport.

Functional Organisation Structure - A structure in which the different functions of the organisation such as finance and operations, report to the chief executive. Used in organisations with a limited product range.

Game-based Theories of Strategy - Focus on the decisions of the organisation and its competitors as strategy is developed - the game - and the interactions between. The two as strategic decisions are taken.

Game Theory - Structured methods of bargaining with and between customers, suppliers and others, both inside and outside the organisation.

Gearing Ratio - The ratio of debt finance to the total shareholders' funds.

General Agreement on Tariffs and Trade (GATT) - International agreement designed to encourage and support world trade.

Generic Strategies - The three basic strategies of cost leadership, differentiation and focus (sometimes called niche) which are open to any business.

Global and National Responsiveness Matrix - This links together the extent of the need for global activity with the need for an organisation to be responsive to national and regional variations. These two areas are not mutually exclusive.

Global Product Company - This will often involve the global integration of manufacturing and one common global brand. There is only limited national variation.

Hierarchy of Resources - The four levels of resource that are the full resources of the organisation. The distinguishing feature of the higher levels is an increased likelihood of sustainable competitive advantage.

Holding Company Organisation Structure - Used for organisations with very diverse product ranges and share relationships. The headquarters acts only as a banker, with strategy largely decided by the individual companies. Sometimes shortened to H-Form structure.

Horizontal Integration - When an organisation moves to acquire its competitors or make some other form of close association.

Human Resource Audit - An examination of the organisation's people and their skills, backgrounds and relationships with each other.

Human Resource-based Theories of Strategy - Emphasise the importance of the people element in strategy development. See also Emergent strategy, Negotiation-based and Learning-based strategic routes forward.

Implementation - The process by which the organisation's chosen strategies are put into operation.

Informal Organisation Structures - Those structures, often unwritten, that have been developed by the history, culture and individuals in an organisation to facilitate the flow of information and allocate power within the structure.

Innovation - The generation and exploitation of new ideas. The process moves products and services, human and capital resources, markets and production processes beyond their current boundaries and capabilities.

Intangible Resources - The organisation's resources that have no physical presence but represent real benefit to the organisation like reputation and technical knowledge.

Intellectual Capital of an Organisation - The future earnings capacity that derives from a deeper, broader and more human perspective than that described in the organisation's financial reports.

International Culture - Collective programming of the mind that distinguishes one human group from another.

International Monetary Fund (IMF) - International body designed to lend funds to countries in international difficulty and to promote trade stability through co-operation and discussion.

Just-in-time System - That ensures that stock is delivered from suppliers only when it is required, with none being held in reserve.

Kaizen - The process of continuous improvement in production and every aspect of value added (Japanese).

Kanban - Control system on the factory floor to keep production moving (Japanese).

Key Factors for Success - Those resources, skills and attributes of the organisations in an industry that are essential to deliver success in the market place. Sometimes called critical success factors.

Knowledge - A fluid mix of framed experience, values, contextual information and expert insight. Note that knowledge is not 'data' or 'information'.

Knowledge Management - The retention, exploitation and sharing of knowledge in an organisation that will deliver sustainable competitive advantage.

Laissez-faire Policy - Describes the policies of a government relying on an approach of non-interference and free-market forces to manage the economy of a country.

Leadership - The art or process of influencing people so that they will strive willingly and enthusiastically towards the achievement of the group's mission.

Learning - The strategic process of developing strategy by crafting, experimentation and feedback. Note that learning in this context does not mean rote or memory learning.

Learning-based Strategic Route Forward - Emphasises learning and crafting as aspects of the development of successful corporate strategy. See also Human resource-based theories of strategy.

Leveraging - The exploitation by an organisation of its existing resources to their fullest extent.

Life Cycle - Plots the evolution of industry annual sales over time. Often divided into distinct phases - introduction, growth, maturity and decline - with specific strategies for each phase.

Logical Incrementalism - The process of developing a strategy by small, incremental and logical steps. The term was first used by Professor J B Quinn.

Logistics - The science of stockholding, delivery and customer service.

Loose-tight Principle - The concept of the need for tight central control by headquarters, while allowing individuals or operating subsidiaries loose autonomy and initiative within defined managerial limits.

Macroeconomic Conditions - Economic activity at the general level of the national or international economy.

Market Equilibrium - The state that allows competitors a viable and stable market share accompanied by adequate profits.

Market Options Matrix - Identifies the product and the market options available to the organisation, including the possibility of withdrawal and movement into unrelated markets.

Market Segmentation - The identification of specific groups (or segments) of customers who respond to competitive strategies differently from other groups. See also Market positioning.

Market Positioning - The choice of differential advantage possessed by an organisation that allows it to compete and survive in a market place. Often associated with competition and survival in a segment of a market. See Market segmentation.

Mass Marketing - One product is sold to all types of customer.

Matrix Organisation Structure - Instead of the product-based multi-divisional structure, some organisations have chosen to operate with two overlapping structures. One structure might typically be product based, with another parallel structure being based on some other element such as geographic region. The two elements form a matrix of responsibilities. Strategy needs to be agreed by both parts of the matrix.

Milestones - Interim indicators of progress during the implementation phase of strategy.

Minimum Intervention - The principle that managers implementing strategy should only make changes where they are absolutely necessary.

Mission Statement - Defines the business that the organisation is in or should be in against the values and expectations of the stakeholders.

Monopoly Rents - Economic rent deriving from the markets in which the organisation operates.

Multi-divisional Organisation Structure - As the product range of the organisation becomes larger and mîrå diverse, similar parts of the product range are grouped together into divisions, each having its own functional management team. Each division has some degree of profit responsibility and reports to the headquarters, which usually retains a significant role in the development of business strategy. Sometimes this is shortened to M-Form structure.

Multinational Enterprise (MNE) - One of the global companies that operate in many countries around the world, for example, Ford, McDonald's and Unilever.

Negative-sum Game - Actions of each party undermine both themselves and their opponents.

Negotiation-based Strategic Route Forward - Has both human resource and game theory elements. Human resource aspects emphasise the importance of negotiating with colleagues in order to establish the optimal strategy. Game theory aspects explore the consequences of the balance of power in the negotiation situation.

Net Cash Flow - Approximately, the sum of pre-tax profits plus depreciation, less the capital to be invested in a strategy.

Niche Marketing - Concentration on a small market segment with the objective of achieving dominance of that segment.

Objectives or goals - State more precisely than a mission statement what is to be achieved and when the results are to be accomplished. They may be quantified.

Oligopoly - A market dominated by a small number of firms.

Organisational capability - The skills, routines, management and leadership of its organisation.

Organisational culture - The style and learned ways that govern and shape the organisation's people relationships.

Outsourcing - The decision by an organisation to buy in products or services from outside, rather than make them inside the organisation.

Paradigm - The recipe or model that links the elements of a theory together and shows, where possible, the nature of the relationships.

Parenting - The special relationships and strategies pursued at the headquarters of à diversified group of companies.

Payoffs - The results of particular game-plays.

PEST Analysis - Checklist of the political, economic, socio-cultural and technological aspects of the environment.

Plans or Programmes - The specific actions that follow from the strategies. Often a step-by-step sequence and timetable.

Portfolio Matrix Analysis - Analyses the range of products possessed by an organisation (its portfolio) against two criteria: relative market share and market growth. It is sometimes called the growth-share matrix.

Predictability of the Environment - The degree to which changes in the environment can be predicted.

Prescriptive Change - The implementation actions that result from the selected strategy option. A defined list of actions is identified once the strategy has been chosen. See also Emergent change.

Prescriptive Corporate Strategy - A strategy whose objective has been defined in advance and whose main elements have been developed before the strategy commences. See also Emergent corporate strategy, where such elements are crafted during the development of the strategy and not defined in advance.

Pressure Points for Influence - The groups or individuals that significantly influence the direction of the organisation, especially in the context of strategic change. Note that they may have no formal power or responsibility.

Primary Demand - Demand from customers for themselves or their families. See also Derived demand.

Process of Corporate Strategy - How the actions of corporate strategy are linked together or interact with each other as strategy unfolds.

Profit-maximising Theories of Strategy - Emphasise the importance of the market place and the generation of profit. See also Prescriptive strategy

Profitability - The ratio of profits from a strategy divided by the capital employed in that strategy. It is important to define clearly the elements in the equation, e.g. whether the profits are calculated before or after tax and before or after interest payments. This is often called the Return on capital employed, shortened to ROCE.

Quotas - A maximum number placed by a nation state on the goods that can be imported into the country in any one period. The quota is defined for a particular product category.

Reputation - The strategic standing of the organisation in the eyes of its customers.

Resource Allocation - The process of allocating the resources of the organisation selectively between competing strategies according to their merit.

Resource-based View - Stresses the importance of resources in delivering the competitive advantage of the organisation. See also Prescriptive strategy.

Retained Profits - The profits that are retained in an organisation rather than distributed to shareholders. These can be used to fund new strategies.

Reward - The result of successful strategy, adding value to the organisation and the individual.

Ricardian Rents - Economic rent deriving from the resources of the organisation. See also Economic rent.

Scenario - Model of a possible future environment for the organisation, whose strategic implications can then be investigated.

Schumpeterian Rents - Economic rent deriving from new and innovatory products and services that allow the organisation to charge significantly above the costs of production. See also Economic rent.

Seven S Framework - The seven elements of super-ordinate goals, strategy, structure, systems, skills, style and staff. In some later versions, the first item was replaced by share values.

Share Issues - New shares in an organisation can be issued to current or new shareholders to raise finance for new strategy initiatives.

Shareholder Value Added - The difference between the return on capital and the cost of capital multiplied by the investment made by the shareholders in the business.

Socio-cultural Theories of Strategy - Focus on the social and cultural dimensions of the organisation in developing corporate strategy.

Split - The variety of techniques that can be employed to develop and sustain the autonomy and diversity of large organisations.

Stakeholders - The individuals and groups who have an interest in the organisation and, therefore, may wish to influence aspects of its mission, objectives and strategies.

Strategic Business Unit (SBU) - The level of a multi-business unit at which the strategy needs to be developed. The unit has the responsibility for determining the strategy of that unit. Not necessarily the same as a Division of the company: there may be more than one SBU within a Division and SBUs may combine elements from more than one Division.

Strategic Change - The proactive management of change in organisations in order to achieve clearly-defined strategic objectives. See also Prescriptive change and Emergent change.

Strategic Fit - The matching process between strategy and organisational structure.

Strategic Groups - Groups of firms within an industry that follow the same strategies or ones that have similar dimensions and which compete closely.

Strategic Planning - A formal planning system for the development and implementation of the strategies related to the mission and objectives of the organisation. It is no substitute for strategic thinking.

Strategic Space - The identification of gaps in an industry representing strategic marketing opportunities

Strategies - The principles that show how an organisation's major objectives or goals are to be achieved over a defined time period. Usually confined only to the general logic for achieving the objectives.

Strategy as History - The view that strategy must, at least in part, be seen as a result of the organisation's present resources, its past history and its evolution over time.

Style Theory of Leadership - Suggests that individuals can be identified who possess a general style of leadership that is appropriate to the organisation.

Survival-based Theories of Strategy - Regard the survival of the fittest in the market place as being the prime determinant of corporate strategy.

Sustainable Competitive Advantage - An advantage over competitors that cannot be easily imitated. Such advantages will generate more value than competitors have.

SWOT Analysis - An analysis of the strengths and weaknesses present internally in the organisation, coupled with the opportunities and threats that the organisation faces externally.

Synergy - The combination of parts of a business such that the sum is worth more than the individual parts - often remembered as '2+ 2 = 5'.

Tangible Resources - The physical resources of the organisation like plant and equipment. See also Intangible resources and Organisational capability.

Target Pricing - Sets the price of goods and services primarily on the basis of the competitive position of the organisation, the profit margin required and, therefore, the target costs that need to be achieved.

Tariffs - Taxes on imported goods imposed by a nation state. They do not stop imports into the country but make them more expensive.

Taylorism - Named after F W Taylor (1856-1915). The division of work into measurable parts, such that new standards of work performance could be defined, coupled with a willingness by management and workers to achieve these. It fell into disrepute when it was used to exploit workers in the early twentieth century. Taylor always denied that this had been his intention.

Tiger Economies - Countries of south East Asia exhibiting exceptionally strong economic growth over the last twenty years, including Singapore, Malaysia, Hong Kong, Thailand and Korea.

Trade Barriers - The barriers set up by governments to protect industries in their own countries.

Trade Block - Agreement between a group (or block) of countries esigned to encourage trade between the countries and keep out other countries.

Trait Theory of Leadership - Argues that individuals with certain characteristics (traits) can be identified who will provide leadership in virtually any situation. See also Contingency theory and Style theory.

Transcend - Given the inevitable complexities of corporate strategy, some strategists argue that every organisation needs an approach to management that transcends these problems and copes with such difficulties.

Transfer Price - The price for which one part of an organisation will sell its goods to another part in a multi-divisional organisation.

Transnational Product Company - This usually involves some global integration of manufacturing coupled with significant national responsiveness to national or regional variations in customer demand.

Uncertainty-based Theories of Strategy - Regard prediction of the environment as being of little value and therefore long-term planning as having little value. See also Emergent strategy.

United Nations Conference on Trade and Development (UNCTAD) - A trade body set up to highlight the trading concerns of the developing nations of the world and promote their interests.

Value Chain - Identifies where the value is added in an organisation and links the process with the main functional parts of the organisation. It is used for developing competitive advantage because such chains tend to be unique to an organisation.

Value System - The wider routes in an industry that add value to incoming supplies and outgoing distributors and customers. It links the industry value chain to that of other industries. It is used for developing competitive advantage.

Vertical Integration - The backward acquisition of raw material suppliers and/or the forward purchase of distributors.

Vision - challenging and imaginative picture of the future role and objectives of an organisation, significantly going beyond its current environment and competitive position. It is often associated with an outstanding leader of the organisation.

Weighted Average Cost of Capital (WACC) - The combination of the costs of debt and equity capital in proportion to the capital structure of the organisation.

Zero-sum Game - Has no pay-off because the gains of one player are negated by the losses of another.